<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the
---
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998 or
(X) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number 0-24411
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MASTER GRAPHICS, INC.
---------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1694322
----------------- ------------------
(State or Other Jurisdiction (I. R. S. Employer
of Incorporation or Organization) Identification No.)
6075 Poplar Avenue, Suite 401, Memphis, TN 38119
------------------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
(901) 685-2020
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--------- ----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.001 Par Value, 7,879,997 shares as of
-------------------
September 30, 1998.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Condensed Consolidated Balance Sheets,
December 31, 1997 and September 30, 1998.......3
Condensed Consolidated Statements
of Operations for the Three Months Ended
September 30, 1997 and September 30, 1998......4
Condensed Consolidated Statements of
Operations for the Nine Months Ended
September 30, 1997 and September 30, 1998......5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 1997 and September 30, 1998......6
Notes to Condensed Consolidated
Financial Statements...........................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................14
PART II. OTHER INFORMATION
Item 2. Legal Proceedings.............................18
Item 6. Exhibits and Reports on Form 8-K..............18
Signatures ..............................................19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 1,174 $ 0
Trade accounts receivable, net...................................... 14,989 37,188
Inventories:
Raw materials and supplies...................................... 1,927 3,348
Work-in-process................................................. 2,909 6,027
------- --------
Total inventories............................................. 4,836 9,375
Deferred income taxes............................................... 161 162
Other current assets................................................ 1,320 2,498
------- --------
Total current assets............................................. 22,480 49,223
Property, plant and equipment, net..................................... 29,550 71,494
Goodwill, net.......................................................... 28,853 53,765
Deferred loan costs, net............................................... 1,396 1,073
Due from shareholder................................................... 3,895 0
Other.................................................................. 210 1,070
------- --------
Total assets..................................................... $86,384 $176,625
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt.............................. $ 3,834 $ 6,768
Accounts payable.................................................... 5,466 8,793
Accrued expenses.................................................... 6,489 6,628
------- --------
Total current liabilities........................................ 15,789 22,189
Long-term debt, net of current installments............................ 65,484 112,703
Deferred income taxes.................................................. 2,266 3,541
Other liabilities...................................................... 1,065 1,153
Redeemable preferred stock............................................. 0 1,408
Redeemable common stock warrant........................................ 3,376 0
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock ($0.001 par value; 100,000,000 shares authorized;
4,000,000 shares issued and outstanding at December 31, 1997 and
7,879,997 shares issued and outstanding at September 30, 1998).... 4 8
Additional paid-in capital.......................................... 3,850 40,164
Retained earnings (deficit)......................................... (5,450) (4,541)
------- --------
Total shareholders' equity....................................... (1,596) 35,631
------- --------
Total liabilities and shareholders' equity....................... $86,384 $176,625
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
-------------------------------
1997 1998
---- ----
<S> <C> <C>
Net revenue.............................................. $12,607 $43,390
Cost of revenue.......................................... 9,792 32,240
------- -------
Gross profit.......................................... 2,815 11,150
Selling, general and administrative expenses............. 1,864 7,265
------- -------
Operating income...................................... 951 3,885
Other income (expense):
Interest expense...................................... (813) (2,132)
Other, net............................................ (366) 133
------- -------
Income (loss) before income taxes................... (228) 1,886
Income tax expense....................................... 0 0
------- -------
Net earnings (loss)................................... $ (228) $ 1,886
======= =======
Basic earnings per share:
Net earnings (loss)................................... $ (0.06) $ 0.24
======= =======
Diluted earnings per share:
Net earnings (loss)................................... $ (0.06) $ 0.23
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1998
---- ----
<S> <C> <C>
Net revenue.................................................... $19,683 $109,935
Cost of revenue................................................ 15,723 81,183
------- --------
Gross profit................................................ 3,960 28,752
Selling, general and administrative expenses................... 3,634 19,099
------- --------
Operating income............................................ 326 9,653
Other income (expense):
Interest expense............................................ (1,067) (7,126)
Other, net.................................................. (366) 532
------- --------
Income (loss) before income taxes and extraordinary loss.. (1,107) 3,059
Income tax expense (benefit)................................... 25 (4)
------- -------
Net earnings (loss) before extraordinary loss............... (1,132) 3,063
Extraordinary loss on extinguishment of debt,
net of income tax benefit of $1,458 ......................... 0 (2,098)
------- --------
Net earnings (loss)......................................... $(1,132) $ 965
======= ========
Basic earnings per share:
Net earnings (loss) before extraordinary loss............... $ (0.28) $ 0.53
Extraordinary loss.......................................... 0.00 (0.38)
------- --------
Net earnings (loss)......................................... $ (0.28) $ 0.15
======= ========
Diluted earnings per share:
Net earnings (loss) before extraordinary loss............... $ (0.28) $ 0.50
Extraordinary loss.......................................... 0.00 (0.35)
------- --------
Net earnings (loss)......................................... $ (0.28) $ 0.15
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1997 1998
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)..................................................................... $ (1,132) $ 965
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 926 4,334
Extraordinary loss on extinguishment of debt, net of income tax benefit............... 0 2,098
Changes in operating assets and liabilities, net of effect of business acquisitions:
Trade accounts receivable......................................................... (916) (7,390)
Inventories....................................................................... (192) 1,418
Other assets...................................................................... (644) (544)
Accounts payable.................................................................. 651 (2,156)
Accrued expenses.................................................................. 585 (649)
-------- --------
Net cash used in operating activities........................................... (722) (1,924)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired............................................. (28,329) (83,059)
Purchases of equipment.................................................................. (4,533) (867)
Repayment of shareholder note receivable................................................ 0 3,895
-------- --------
Net cash used in investing activities........................................... (32,862) (80,031)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on lines of credit.......................................... (111) 5,301
Proceeds from issuance of long-term debt................................................ 36,249 76,316
Net proceeds from initial public offering of stock...................................... 0 30,087
Issuance of common stock to finance acquisitions........................................ 0 1,280
Principal payments on long-term debt.................................................... (1,973) (31,453)
Loan costs incurred..................................................................... (777) (750)
-------- --------
Net cash provided by financing activities....................................... 33,388 80,781
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................................ (196) (1,174)
CASH AND CASH EQUIVALENTS, beginning of period........................................... (91) 1,174
-------- --------
CASH AND CASH EQUIVALENTS, end of period................................................. $ (287) $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Master Graphics,
Inc. and its subsidiaries (collectively "Company") are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto.
In the opinion of the Company, the accompanying condensed consolidated financial
statements contain all adjustments (consisting of only normal, recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows of the Company as of the dates and for the periods
presented.
Because of the seasonal nature of the Company's business, the results of
operations for the periods presented are not necessarily indicative of the
results of operations for a full fiscal year.
Effective January 1, 1998, the Company changed its fiscal year-end to December
31. Prior to 1998, the Company's fiscal year ended on June 30. Comparative
nine-month financial information for 1997 contained herein have been restated on
a December 31 year-end basis.
On May 14, 1998, the Board of Directors of the Company approved a 40,000 to 1
stock split. All references to share and per share amounts in these condensed
consolidated financial statements have been retroactively restated to reflect
the stock split.
The accompanying unaudited condensed consolidated financial statements of the
Company include the results of operations of Master Graphics, Inc. and its
subsidiaries, on a consolidated basis. All intercompany balances and
transactions have been eliminated in the consolidation.
(2) EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net earnings less preferred
stock dividend and discount accretion by the weighted average number of common
shares outstanding. For the three months September 30, 1997 and 1998, the basic
weighted average shares outstanding were 4,000,000 and 7,736,229, respectively.
For the nine months ended September 30, 1997 and 1998, the basic weighted
average shares outstanding were 4,000,000 and 5,540,413, respectively.
Conversion of the preferred stock is not assumed in the diluted earnings per
share calculations as the effect is anti-dilutive on an incremental basis.
Exercise of employee stock options and seller warrants are not assumed because
their effect would be anti-dilutive using the treasury stock method. For the
three months ended September 30, 1997 and 1998, the diluted weighted average
shares outstanding were 4,278,258 and 8,056,229, respectively. For the nine
months ended September 30, 1997 and 1998, the diluted weighted average shares
outstanding were 4,093,772 and 5,919,162 respectively.
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
THREE MONTHS ENDED SEPTEMBER 30, 1998 (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Net earnings before extraordinary loss $1,885,519
Less: Redeemable preferred stock dividends (28,000)
Less: Redeemable preferred stock discount (28,969)
----------
BASIC EARNINGS PER SHARE
Income available to common shareholders 1,828,550 7,736,229 $0.24
==========
EFFECT OF DILUTIVE SECURITIES
Lender Warrants 220,000
Deferred compensation contract 15,675 100,000
-------------------------
DILUTED EARNINGS PER SHARE
Net earnings available to common shareholders plus assumed conversions $1,844,225 8,056,229 $0.23
=====================================
INCOME SHARES PER-SHARE
NINE MONTHS ENDED SEPTEMBER 30, 1998 (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------ ---------- ------------ ---------
Net earnings before extraordinary loss $3,062,403
Less: Redeemable preferred stock dividends (56,000)
Less: Redeemable preferred stock discount (57,938)
----------
BASIC EARNINGS PER SHARE
Income available to common shareholders 2,948,465 5,540,413 $0.53
==========
EFFECT OF DILUTIVE SECURITIES
Lender Warrants 278,749
Deferred compensation contract 31,350 100,000
-------------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders plus assumed conversions $2,979,815 5,919,162 $0.50
=====================================
</TABLE>
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(Unaudited)
(3) ACQUISITIONS AND FINANCINGS
In March 1998, the Company acquired all of the outstanding common stock of
Harperprints, Inc., Hederman Brothers, Inc., and Phillips Litho Co., Inc. All
of these businesses are engaged in commercial printing. These acquisitions were
paid for with a combination of cash ($14.2 million), sellers notes ($2.3
million) and warrants to acquire common stock (valued at $.3 million). These
acquisitions have been accounted for by the purchase method and, accordingly,
the results of operations of Harperprints, Hederman, and Phillips have been
included in the Company's 1998 consolidated financial statements from their
respective acquisition dates. The excess of the purchase prices over the fair
value of the net identifiable assets acquired is approximately $10 million,
which has been recorded as goodwill and is being amortized on a straight-line
basis over 40 years.
In May 1998, the Company acquired all of the outstanding common stock of
McQuiddy Printing Company, Inc., a general commercial printer. The acquisition
was paid for with a combination of cash ($5 million), sellers' notes ($1.5
million) and warrants to acquire common stock (valued at $61,000). The
acquisition has been accounted for by the purchase method and, accordingly, the
results of its operations have been included in the Company's 1998 consolidated
financial statements from the date of acquisition. There was no goodwill
recognized from this acquisition.
In August 1998, the Company acquired all of the outstanding common stock of
Rainbow Group, Inc. (dba "Golden Rule Printing"), a general commercial printer
along with certain operating assets owned by a related entity. The acquisition
was paid for with a combination of cash ($4.1 million) and common stock ($1.28
million). The acquisition has been accounted for by the purchase method, and,
accordingly, the results of its operations have been included in the Company's
1998 consolidated financial statements from the date of acquisition. The excess
of the purchase price over the fair value of the net identifiable assets
acquired is approximately $5 million, which has been recorded as goodwill and is
being amortized on a straight-line basis over 40 years.
In September 1998, the Company acquired all of the outstanding common stock of
David A. Harding Enterprises, Inc. (dba. "The Printing Company") and Stephenson,
Incorporated. Both of these businesses are engaged in commercial printing.
These acquisitions were paid for with cash ($13.7 million). These acquisitions
have been accounted for by the purchase method, and, accordingly, the results
of operations of the Printing Company and Stephenson have been included in the
Company's 1998 consolidated financial statements from their respective
acquisition dates. The excess of the purchase prices over the fair value of the
net identifiable assets acquired is approximately $6.5 million, which has been
recorded as goodwill and is being amortized on a straight-line basis over 40
years.
The following unaudited pro forma financial information presents the combined
results of operations of the Company and the acquired businesses, as if the
acquisitions had occurred at the beginning of the period presented. Pro forma
amounts for 1997 also include the effects of the 1997 acquisitions not described
above. Effect has been given to certain adjustments, including amortization of
goodwill, adjusted depreciation expense and increased interest expense on debt
related to the acquisitions. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
company and the acquired businesses constituted a single entity during such
periods.
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1998
---- ----
<S> <C> <C>
Net revenue $147,979,000 $155,935,000
============ ============
Net earnings before extraordinary loss 1,260,000 1,675,000
============ ============
Net earnings (loss) 1,260,000 (423,000)
============ ============
Basic earnings per share before extraordinary loss 0.32 0.30
============ ============
Basic earnings (loss) per share 0.32 (0.08)
============ ============
Diluted earnings per share before extraordinary loss 0.31 0.28
============ ============
Diluted earnings (loss) per share $ 0.31 $(0.07)
============ ============
</TABLE>
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(Unaudited)
The cash portion of the Hederman and McQuiddy acquisitions were funded by draws
of $5.9 million and $7.9 million, respectively, on the Company's acquisition
line of credit under its Amended and Restated Credit Agreement, as well as a
$1.1 million draw under the Company's revolving line of credit. The cash
portions of the Phillips and Harperprints acquisitions were funded by two
separate $15 million and $10 million term loans, both of which were repaid with
proceeds from the Company's initial public offering of common stock.
In August 1998, the Company entered into a 2nd Amended and Restated Credit
Agreement (the "Credit Agreement") whereby the $60 million outstanding was
restructured with quarterly principal payments ranging from $1.12 million in the
first year to $1.68 million in year five with the entire balance due in August
2003. In addition, the Credit Agreement has a $30 million acquisition line of
credit. The interest rate varies from LIBOR plus 2.5% to LIBOR plus 3.00%. In
addition, the Company entered into a new $15 million Revolving Credit and Letter
of Credit Facility (the "Revolving Line of Credit"). The Revolving Credit
Facility is due in August 2001 and has an interest rate of LIBOR plus 2.25% or
Prime Rate.
The cash portion of the Golden Rule acquisition was funded by an $8 million draw
from the Company's acquisition line of credit. The cash portion of the
Stephenson acquisition was funded by at $22 million draw from the Company's
acquisition line of credit. The cash portion of The Printing Company
acquisition was funded by a $4.4 million draw from the Company's Revolving Line
of Credit as well as approximately $2 million in cash from the Company.
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(Unaudited)
The Company and its Senior Lender also effectively entered into an exchange in
March, 1998, whereby the Company issued 177,776 shares of its newly created
Series A Cumulative Convertible Preferred Stock, par value $0.001 ("Series A
Preferred Stock") in exchange for the Senior Lender's warrant to purchase a 4%
interest in the Company's outstanding common stock. The Series A Preferred Stock
carries an annual dividend rate of 5% of its liquidation value ($12.8125 per
share); dividends are payable quarterly and accrued. The Series A Preferred
Stock is convertible into common stock at the holder's option at a ratio of one
share of common stock per each share of Series A Preferred Stock. The Series A
Preferred Stock is redeemable by the holder at the end of seven years at a price
effectively equal to the greater of its liquidation value or the fair value of
the underlying common stock on an as-if converted basis. The Series A Preferred
Stock has been classified out of stockholder's equity because of certain holder
put features which are out of the control of the Company. The Series A Preferred
Stock was initially recorded at its fair value at the date of issuance
(approximately $1.35 million) and is subsequently being accreted to its
mandatory redemption value.
In June 1998, the Company completed an initial public offering of 3,400,000
shares ($.001 par value; 100,000,000 shares authorized) of common stock at
$10.00 per share. In addition, another 200,000 shares were offered by a selling
shareholder of the Company. Proceeds of the initial public offering were used
to repay indebtedness owed to the selling shareholder, to repay a portion of the
indebtedness owed to its Senior Lender and to pay acquisition advisory fees
deferred until the completion of the offering. The repayment of indebtedness
totaled $29.5 million and included the $10 million Harperprints term loan, the
$15 million Phillips Litho term loan, and the $4.3 million Sirrom loan. The
write-off of the related deferred loan costs ($.6 million) and unamortized debt
discounts ($3.0 million) has been recorded as a $2.1 million extraordinary
expense, net of tax of $1.5 million.
(4) LENDER WARRANTS
In connection with the obtaining of the Harperprints acquisition financing, the
Company issued to its Senior Lender a warrant to acquire common stock. The
warrant expires, if unexercised, on September 26, 2007. The Senior Lender was
granted demand and piggyback registration rights. The Company has the option to
call the warrant under certain conditions, including the passage of five years,
at a price equal to the warrant's current market value at that date. This
instrument was recorded at its fair value at the date of issuance as additional
paid-in capital. The initial fair market value of the lender's warrant was
netted against the related debt and was being amortized as a component of
interest expense over the life of the debt. As discussed above in note 3, the
remaining unamortized discount was written off upon the extinguishment of the
debt.
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(Unaudited)
In April 1998, the common stock warrant issued to Sirrom Capital Corporation
("Sirrom") was exercised and 266,664 shares of common stock were issued. At the
time of the exercise, the carrying value of the Sirrom warrant was reclassified
to additional paid-in capital.
(5) LONG-TERM DEBT
The following is a summary of the Company's long-term debt instruments (in
thousands) as of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
----------- ------------
<S> <C> <C>
(unaudited)
Term loans, net of discount of $900 and $1,029
in 1997 and 1998 respectively .......................... $46,905 $ 88,971
Sirrom note ............................................... 3,454 0
Seller notes .............................................. 12,200 16,084
Revolving line of credit .................................. 570 5,809
Other ..................................................... 6,189 8,607
------- --------
69,318 119,471
Less current installments ................................. 3,834 6,768
------- --------
Long-term debt, net ....................................... $65,484 $112,703
======= ========
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the Company's property, plant and equipment (in
thousands) as of:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
(unaudited)
Land ................................................... $ 176 $ 489
Buildings ............................................. 1,385 3,637
Leasehold improvements ........................... 991 1,103
Machinery and equipment ........................ 29,508 70,312
Furniture and fixtures .............................. 2,275 3,291
Vehicles ............................................. 703 1,402
------- -------
35,038 80,234
Less accumulated depreciation ............... 5,488 8,740
------- -------
$29,550 $71,494
======= =======
</TABLE>
<PAGE>
MASTER GRAPHICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(Unaudited)
(7) RELATED PARTY TRANSACTIONS
In June 1998, the sole shareholder prior to the Company's initial public
offering repaid a promissory note of $2.8 million, a note payable of $950,000
and accrued interest on the obligations.
(8) INCOME TAXES
The deferred tax asset valuation allowance has been reduced by approximately
$1,300,000 during the nine months ended September 30, 1998. Management has
concluded that it is more likely than not that a portion of the previously
reserved deferred tax asset will be realized based on consideration of current
levels of taxable operating income and projections of future taxable income.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. READERS ARE CAUTIONED THAT SUCH INFORMATION
INVOLVES KNOWN AND UNKNOWN UNCERTAINTIES, INCLUDING THOSE CREATED BY GENERAL
MARKET CONDITIONS, COMPETITION AND THE POSSIBILITY THAT EVENTS MAY OCCUR WHICH
LIMIT THE ABILITY OF THE COMPANY TO MAINTAIN OR IMPROVE ITS OPERATING RESULTS OR
EXECUTE ITS GROWTH STRATEGY OF ACQUIRING ADDITIONAL BUSINESSES. ALTHOUGH THE
COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS
ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD BE INACCURATE, AND THERE CAN
THEREFORE BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN
WILL PROVE TO BE ACCURATE. THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE
REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE
OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
GENERAL
Master Graphics, Inc. ("MAGR" or the "Company") is a rapidly growing provider of
general commercial printing services to customers throughout the United States.
Since June 1997, the Company has acquired 13 high quality, market leading,
general commercial printing companies which, along with the predecessor company,
B&M Printing, operate as separate divisions of the Company. The Company's
divisions have an average operating history in excess of 50 years, established
customer relationships and strong reputations for customer service,
responsiveness and quality. The Company's acquisition and operating strategies
are focused on continued selective acquisitions and internal growth.
The Company provides service in all areas of general commercial printing
including prepress, printing and postpress services. Products include annual
reports, direct mail pieces, sales literature, point of purchase materials,
market letters, newsletters, training manuals, product brochures, catalogs and
university recruiting materials for customers such as FedEx, IBM, Provident
Life, W. W. Grainger, Turner Broadcasting and G.D. Searle.
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth certain unaudited condensed consolidated
financial data for the periods indicated (dollars in millions) and such results
as a percentage of revenue.
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1997 1998
-------------- ---------------
<S> <C> <C> <C> <C>
Revenue...................................................... $12.6 100.0% $ 43.4 100.0%
Gross profit................................................. 2.8 22.2 11.2 25.8
Selling, general and administrative
expenses................................................ 1.8 14.3 7.3 16.8
Operating income ............................................ 1.0 7.9 3.9 9.0
Interest and other expense .................................. 1.2 9.5 2.0 4.6
Net earnings (loss) ......................................... $ (.2) (1.6)% $ 1.9 4.4%
- ----------------------------
</TABLE>
Three Months Ended September 30, 1998 Compared to Three Months
Ended September 30, 1997
Revenue. Revenue increased approximately 244% from $12.6 million for
the three months ended September 30, 1997 to $43.4 for the three months ended
September 30, 1998. Revenue growth was attributable primarily to the
implementation of the Company's acquisition strategy; three acquisitions
occurred in the second quarter of 1997, one acquisition occurred in the third
quarter of 1997, two acquisitions occurred in the fourth quarter of 1997, three
acquisitions occurred in the first quarter of 1998, one acquisition occurred in
the second quarter of 1998, and three acquisitions occurred in the third quarter
of 1998.
Gross Profit. Gross profit increased from $2.8 million for the three
months ended September 30, 1997 to $11.2 million for the three months ended
September 30, 1998. The increase in gross profit was attributable primarily to
the implementation of the Company's acquisition strategy. Gross profit as a
percentage of sales increased to 25.8% for the three months ended September 30,
1998, from 22.2% in the corresponding period of the prior year. This
improvement, which is primarily attributable to the mix of operating divisions
acquired, also reflects a decrease in labor and lease costs related to the sale
by the B&M Printing division of a web press, whose utilization has been absorbed
by the other divisions, and cost savings generated by the Company's improved
purchasing leverage.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $1.8 million for the three months ended
September 30, 1997 to $7.3 million for the three months ended September 30,
1998. Selling expenses increased with increasing revenue mentioned above and
general and administrative expenses increased in conjunction with the Company's
acquisition strategy and an increase in corporate level expenses incurred in
preparation for the Company's public stock offering.
Interest Expense. Interest expense increased from $1.2 million for
the three months ended September 30, 1997 to $2.0 million for the three months
ended September 30, 1998. A substantial portion of the purchase price for each
of the Company's acquisitions was financed with debt. Accordingly, the increase
in interest expense is primarily attributable to the Company's acquisition
program and related financing activities.
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------------
1997 1998
-------------- ---------------
<S> <C> <C> <C> <C>
Revenue...................................................... $19.7 100.0% $109.9 100.0%
Gross profit................................................. 4.0 20.3 28.8 26.2
Selling, general and administrative
expenses................................................ 3.7 18.8 19.1 17.4
Operating income ............................................ .3 1.5 9.7 8.8
Interest and other expense................................... 1.4 7.1 6.6 6.0
Net earnings (loss) before extraordinary
loss.................................................... (1.1) (5.6) 3.1 2.8
Extraordinary loss........................................... - - (2.1) (1.9)
Net earnings (loss) ......................................... $(1.1) (5.6)% $ 1.0 .9%
- -------------------------
</TABLE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Revenue. Revenue increased approximately 458% from $19.7 million for
the nine months ended September 30, 1997 to $109.9 for the nine months ended
September 30, 1998. Revenue growth was attributable primarily to the
implementation of the Company's acquisition strategy as described above.
Gross Profit. Gross profit increased from $4.0 million for the nine
months ended September 30, 1997 to $28.8 million for the nine months ended
September 30, 1998. The increase in gross profit was attributable primarily to
the implementation of the Company's acquisition strategy. Gross profit as a
percentage of sales increased to 26.2% for the nine months ended September 30,
1998, from 20.3% in the corresponding period of the prior year. This
improvement, which is primarily attributable to the mix of operating divisions
acquired, also reflects a decrease in labor and lease costs related to the sale
by the B&M Printing division of a web press whose utilization has been absorbed
by the other divisions, and cost savings generated by the Company's improved
purchasing leverage.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $3.7 million for the nine months ended
September 30, 1997 to $19.1 million for the nine months ended September 30,
1998. Selling expenses increased with increasing revenue mentioned above and
general and administrative expenses increased in conjunction with the Company's
acquisition strategy and an increase in corporate level expenses incurred in
preparation for the Company's initial public stock offering.
Interest Expense. Interest expense increased from $1.4 million for
the nine months ended September 30, 1997 to $6.6 million for the nine months
ended September 30, 1998. A substantial portion of the purchase price for each
of the Company's acquisitions was financed with debt. Accordingly, the increase
in interest expense is primarily attributable to the Company's acquisition
program and related financing activities.
Extraordinary Loss. The Company incurred an extraordinary loss of
approximately $2.1 million (net of tax benefit of $1.5 million) related to the
write-off of deferred financing costs and unamortized debt discounts resulting
from the repayment of certain indebtedness in connection with the Company's
initial public offering.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital expenditures, debt
service and acquisitions. Historically, the Company has financed its operations
and equipment purchases with cash flow from operations, capital leases and
secured loans through commercial banks or other institutional lenders and credit
lines from commercial banks. The Company has financed its acquisitions primarily
with funds from its senior term lender as well as subordinated notes payable to
former owners of the acquired companies. Working capital on September 30, 1998
was approximately $27 million, an increase of more than $20 million from
December 31, 1997.
To date, the Company's largest source of capital has been from its $90 million
Senior Credit Facility which originally closed in September 1997, and has
periodically been increased to provide for the funding of acquisitions completed
since that time. As of September 30, 1998, $90 million was outstanding under
the facility. Of the outstanding borrowings, (i) $28 million is owed pursuant
to a term note due in August 2003, payable in quarterly installments of
$1,120,000, plus interest payable monthly at a floating rate equal to the London
Interbank Offered Rate ("LIBOR") plus 2.50%; and (ii) $32 million is owed
pursuant to a term note payable in a single installment in August 2003, plus
interest payable monthly at a floating rate equal to the LIBOR plus 3.00%. In
addition, the Company has a $30 million acquisition line facility to finance
eligible acquisitions (as defined). Loans under the acquisition facility are
due in quarterly installments equal to 1/40th of the amount drawn, with a final
installment due in August 2003, plus interest payable monthly at a floating rate
equal to the LIBOR plus 2.75%. The Company is subject to certain covenants and
restrictions and must meet certain financial tests as defined in the senior term
credit agreement.
The Company also may borrow under its revolving credit facility with a finance
company, which is a $15 million working capital line of credit. Borrowings
under the line of credit facility are limited by a borrowing base formula. As
of September 30, 1998, the Company had $5.8 million outstanding under the
revolving credit facility and $9.2 million in available borrowing capacity.
The Company anticipates that its cash flow from operating activities will
provide cash adequate to finance its normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment.
Currently, the Company does not have unused capacity under its acquisition
facility but is pursuing various financing alternatives. Master Graphics, Inc.
is dependent upon the cash flow of and the transfer of funds from its
subsidiary, Premier Graphics, which, under its various credit facilities, is
subject to restrictions on its ability to pay dividends to Master Graphics, Inc.
Former owners of several of the acquired companies also have the opportunity to
receive additional amounts of consideration up to a maximum of approximately $27
million, payable in cash, contingent upon meeting certain cash flow or earnings
targets.
YEAR 2000
Like many other companies, the Year 2000 computer issue creates risks for the
Company. If internal systems do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations. There are two other related issues which could also lead
to incorrect calculations or failures: i) some systems' programming assigns
special meaning to certain dates, such as 9/9/99, and ii) the year 2000 is a
leap year. The Year 2000 compliance issues stem from the computer industry's
practice of conserving data storage by using two digits to represent a year.
Systems and hardware using this format may process data incorrectly or fail with
the use of dates in the next century. These types of failures can influence
applications that rely on dates to perform calculations (such as an accounts
receivable aging report), as well as systems such as building security and
heating.
The Company believes its exposure to Year 2000 issues is limited to the purchase
of computer hardware, and to a lesser extent software, at certain of its
locations. The Company has initiated a program that includes a review of all
computers, software and related date-sensitive equipment used in the management
of print jobs, office automation, accounting, process control and other
applications. The Company expects its corrective action resulting from the
review to be complete by the end of the third quarter 1999. Testing at each
division will commence as action plans are completed. The Company anticipates
that the cost of such corrective actions will be approximately $750,000 for the
existing divisions. The due diligence process for new acquisitions by the
Company includes a Year 2000 assessment, with corrective action plans scheduled
for immediate implementation.
The Company believes its Year 2000 risk areas are focused on the loss of its
ability to operate due to (i) equipment malfunction or (ii) customer inability
to forward electronic images due to its own Year 2000 malfunctions. As part of
the investigation process, the Company's suppliers and other service vendors are
being asked to provide documentation on their Year 2000 compliance status. Each
operating division has assigned a Year 2000 compliance officer responsible for
identifying local problem areas and managing corrective actions. The Company
also believes it has the capability in place to provide expertise to customers
to develop the electronic images necessary for respective print jobs.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to claims
arising in the normal course of business. The Company maintains insurance
coverage in amounts deemed adequate to cover potential claims. Current
litigation involving the Company is not considered significant by management to
the Company's financial position or operating results. While the outcome of
lawsuits or other proceedings against the Company cannot be predicted with
certainty, the Company believes the outcomes of any of these matters will not
have a material effect on operating results or financial position.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 Loan and Security agreement dated August 21, 1998, for Premier
Graphics, Inc.
10.2 Second Amended and Restated Loan Agreement dated August 21, 1998,
between Premier Graphics, Inc. and General Electric Capital
Corporation.
10.3 Employment Agreement dated as of July 1, 1998 between Master
Graphics, Inc. and Donald Goldman.
11.1 Statement regarding computation of Per Share Earnings
27.1 Financial Data Schedule (for SEC use only)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Master
Graphics, Inc. has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MASTER GRAPHICS, INC.
By: /s/ Lance T. Fair
----------------------------------
Lance T. Fair
Sr. Vice President - Acquisitions
Chief Financial Officer
Date: November 16, 1998
By: /s/ P. Melvin Henson, Jr.
---------------------------------
P. Melvin Henson, Jr.
Sr. Vice President - Finance & Administration
Chief Accounting Officer
Date: November 16, 1998
<PAGE>
- --------------------------------------------------------------------------------
PREMIER GRAPHICS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
Dated: August 21, 1998
$15,000,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION.................... - 1 -
1.1. DEFINITIONS........................................... - 1 -
-----------
1.2. ACCOUNTING TERMS...................................... - 19 -
----------------
1.3. OTHER TERMS........................................... - 19 -
-----------
1.4. CERTAIN MATTERS OF CONSTRUCTION....................... - 20 -
-------------------------------
SECTION 2. CREDIT FACILITIES.................................... - 20 -
2.1. REVOLVER LOANS........................................ - 20 -
--------------
2.2. LETTERS OF CREDIT..................................... - 21 -
-----------------
2.3. INDEMNIFICATION....................................... - 23 -
---------------
SECTION 3. INTEREST, FEES AND CHARGES............................ - 23 -
3.1. INTEREST.............................................. - 23 -
--------
3.2. FEES.................................................. - 25 -
----
3.3. COMPUTATION OF INTEREST AND FEES...................... - 26 -
--------------------------------
3.4. REIMBURSEMENT OF EXPENSES............................. - 26 -
-------------------------
3.5. BANK CHARGES.......................................... - 27 -
------------
3.6. MAXIMUM INTEREST...................................... - 27 -
----------------
3.7. ILLEGALITY............................................ - 28 -
----------
3.8. INCREASED COSTS....................................... - 28 -
---------------
3.9. CAPITAL ADEQUACY...................................... - 29 -
----------------
3.10. FUNDING LOSSES........................................ - 29 -
--------------
SECTION 4. LOAN ADMINISTRATION................................... - 30 -
4.1. MANNER OF BORROWING REVOLVER LOANS.................... - 30 -
----------------------------------
4.2. SPECIAL PROVISIONS GOVERNING LIBOR LOANS.............. - 31 -
----------------------------------------
4.3. REPAYMENT OF REVOLVER LOANS........................... - 31 -
---------------------------
4.4. PAYMENT OF OTHER OBLIGATIONS.......................... - 32 -
----------------------------
4.5. APPLICATION OF PAYMENTS AND COLLECTIONS............... - 32 -
---------------------------------------
4.6. ALL LOANS TO CONSTITUTE ONE OBLIGATION................ - 33 -
--------------------------------------
4.7. LOAN ACCOUNT.......................................... - 33 -
------------
4.8. STATEMENTS OF ACCOUNT................................. - 33 -
---------------------
4.9. MARSHALLING; PAYMENTS SET ASIDE....................... - 33 -
-------------------------------
SECTION 5. TERM AND TERMINATION.................................. - 33 -
5.1. TERM OF AGREEMENT..................................... - 33 -
-----------------
5.2. TERMINATION........................................... - 33 -
-----------
SECTION 6. COLLATERAL SECURITY................................... - 34 -
6.1. GRANT OF SECURITY INTEREST IN COLLATERAL.............. - 34 -
----------------------------------------
6.2. LIEN PERFECTION; FURTHER ASSURANCES................... - 35 -
-----------------------------------
6.3. LIEN ON DEPOSIT ACCOUNTS.............................. - 35 -
------------------------
SECTION 7. COLLATERAL ADMINISTRATION............................. - 36 -
7.1. GENERAL............................................... - 36 -
-------
7.2. ADMINISTRATION OF ACCOUNTS............................ - 37 -
--------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
7.3. ADMINISTRATION OF INVENTORY........................... - 38 -
---------------------------
7.4. PAYMENT OF CHARGES.................................... - 39 -
------------------
SECTION 8. REPRESENTATIONS AND WARRANTIES........................ - 39 -
8.1. GENERAL REPRESENTATIONS AND WARRANTIES................ - 39 -
--------------------------------------
8.2. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES....... - 43 -
-----------------------------------------------
8.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES............ - 44 -
------------------------------------------
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS................... - 44 -
9.1. AFFIRMATIVE COVENANTS................................. - 44 -
---------------------
9.2. NEGATIVE COVENANTS.................................... - 46 -
------------------
9.3. SPECIFIC FINANCIAL COVENANTS.......................... - 49 -
----------------------------
SECTION 10. CONDITIONS PRECEDENT.................................. - 50 -
10.1. CONDITIONS PRECEDENT TO INITIAL LOANS................. - 50 -
-------------------------------------
10.2. CONDITIONS PRECEDENT TO EXECUTION OF LC APPLICATION... - 51 -
---------------------------------------------------
10.3. CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS......... - 52 -
---------------------------------------------
10.4. LIMITED WAIVER OF CONDITIONS PRECEDENT................ - 52 -
--------------------------------------
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT..... - 53 -
11.1. EVENTS OF DEFAULT..................................... - 53 -
-----------------
11.2. ACCELERATION OF THE OBLIGATIONS....................... - 55 -
-------------------------------
11.3. OTHER REMEDIES........................................ - 55 -
--------------
11.4. SETOFF................................................ - 56 -
------
11.5. REMEDIES CUMULATIVE; NO WAIVER........................ - 56 -
------------------------------
SECTION 12. MISCELLANEOUS......................................... - 57 -
12.1. POWER OF ATTORNEY..................................... - 57 -
-----------------
12.2. INDEMNITY............................................. - 58 -
---------
12.3. MODIFICATION OF AGREEMENT; SALE OF INTEREST........... - 58 -
-------------------------------------------
12.4. SEVERABILITY.......................................... - 58 -
------------
12.5. SUCCESSORS AND ASSIGNS................................ - 58 -
----------------------
12.6. CUMULATIVE EFFECT; CONFLICT OF TERMS.................. - 59 -
------------------------------------
12.7. EXECUTION IN COUNTERPARTS............................. - 59 -
-------------------------
12.8. NOTICE................................................ - 59 -
------
12.9. LENDER'S CONSENT...................................... - 60 -
----------------
12.10. CREDIT INQUIRIES...................................... - 60 -
----------------
12.11. TIME OF ESSENCE....................................... - 60 -
---------------
12.12. ENTIRE AGREEMENT; EXHIBITS AND SCHEDULES.............. - 60 -
----------------------------------------
12.13. INTERPRETATION........................................ - 60 -
--------------
12.15. GOVERNING LAW; CONSENT TO FORUM....................... - 61 -
-------------------------------
12.16. WAIVERS BY BORROWER................................... - 61 -
-------------------
</TABLE>
-ii-
<PAGE>
LIST OF EXHIBITS
----------------
Exhibits
- --------
Exhibit A Revolving Credit Note
Exhibit B Compliance Certificate
Exhibit C Borrowing Base Certificate
Exhibit D Opinion Letter
Schedules
- ---------
Borrower's and each Subsidiary's Business Locations
Jurisdictions in which Borrower and each Subsidiary is Authorized to do
Business
Capital Structure of Borrower
Corporate Names
Tax Identification Numbers of Subsidiaries
Patents, Trademarks, Copyrights and Licenses
Contracts Restricting Borrower's Right to Incur Debts
Litigation
Capitalized and Operating Leases
Operating Leases
Pension Plans
Labor Contracts
Permitted Liens
-iii-
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 21st day of August, 1998, by
and between DEUTSCHE FINANCIAL SERVICES CORPORATION (together with its
successors and assigns, "Lender"), a Nevada corporation with an office at 3225
Cumberland Boulevard, Suite 700, Atlanta, Georgia 30339; and PREMIER GRAPHICS,
INC. ("Borrower"), a Delaware corporation with its chief executive office and
principal place of business at 6075 Poplar Avenue, Suite 401, Memphis, Tennessee
38119.
R E C I T A L S
---------------
Borrower has requested that Lender make revolving loans and other financial
accommodations to Borrower as more fully described in this Agreement.
Lender is willing to make such loans and other financial accommodations to
Borrower, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION
1.1. Definitions. When used herein the following terms shall have the
-----------
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa):
Account - shall have the meaning given to "account" in the UCC.
-------
Account Debtor - any Person who is or may become obligated under or on
--------------
account of an Account.
Accounts Formula Amount - on any date of determination thereof, an
-----------------------
amount equal to 85% of the net amount of Eligible Accounts on such date.
As used herein, the phrase "net amount of Eligible Accounts" shall mean the
face amount of such Accounts on any date less any and all returns, rebates,
discounts (which may, at Lender's option, be calculated on shortest terms),
credits, allowances or Taxes (including sales, excise or other taxes) at
any time issued, owing, claimed by Account Debtors, granted, outstanding or
payable in connection with, or any interest accrued on the amount of, such
Accounts at such date.
Acquisition Consideration - with respect to any Eligible Acquisition,
-------------------------
the aggregate consideration and transaction costs payable in connection
therewith, including customary indemnities and holdbacks, any debt owed to
the applicable seller and, subject to Lender's prior consent, any Debt
assumed by Borrower.
Acquisition Loan - a Revolver Loan the proceeds of which will be used
----------------
for an Eligible Acquisition.
<PAGE>
Acquisition Loan Availability Requirement - as of the date of the
-----------------------------------------
funding of an Acquisition Loan and for 60 days thereafter, the sum of (a)
the Accounts Formula Amount (inclusive of Eligible Accounts to be acquired
in the proposed Acquisition) and (b) the Inventory Formula Amount
(inclusive of Eligible Inventory to be acquired in the proposed
Acquisition), less (c) the outstanding Revolver Loan balance at any time
----
during such period, is not less than $5,000,000 as of any such date.
Acquisition Loan Conditions - in respect of each request for an
---------------------------
Acquisition Loan, each of the following:
(i) Borrower shall have given Lender 30 days' prior notice of its
intent to request an Acquisition Loan;
(ii) Lender, in its sole discretion, shall have determined that the
proposed Acquisition constitutes an Eligible Acquisition;
(iii) As of the date of the funding of the requested Acquisition Loan
(based on pro-formas prepared in connection with the proposed Acquisition
in form acceptable to Lender), the sum of (a) the Accounts Formula Amount
(inclusive of Eligible Accounts to be acquired in the proposed Acquisition)
and (b) the Inventory Formula Amount (inclusive of Eligible Inventory to be
acquired in the proposed Acquisition), less (c) the outstanding Revolver
----
Loan balance as of such date, is $5,000,000 or more.
Adjusted LIBOR Rate - with respect to each Interest Period for a LIBOR
-------------------
Loan, an interest rate per annum (rounded upwards, to the next 1/16th of
1%) equal to the quotient of (a) the LIBOR Rate in effect for such Interest
Period divided by (b) a percentage (expressed as a decimal) equal to 100%
minus Statutory Reserves.
Affiliate - a Person (other than a Subsidiary or GECC or an Affiliate
---------
of GECC): (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control
with, a Person; (ii) which beneficially owns or holds 5% or more of any
class of the Voting Stock of a Person; or (iii) 5% or more of the Voting
Stock (or in the case of a Person which is not a corporation, 5% or more of
the equity interest) of which is beneficially owned or held by a Person or
a Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
---------
sentence hereof and all Exhibits and Schedules hereto.
Applicable Margin - a percentage equal to 2.25% with respect to LIBOR
-----------------
Loans and 0% with respect to Prime Rate Loans; provided that, commencing
January 1, 1999, if there exists no Default or Event of Default, then the
Applicable Margin shall be increased or decreased, based upon the Funded
Debt/EBITDA Ratio, as follows:
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin for
Funded Debt/EBITDA Ratio for Prime Rate Loans LIBOR Loans
------------------------ -------------------- ----------------------
<S> <C> <C>
(i) If the Funded Debt/EBITDA Ratio
is equal to or greater
</TABLE>
-2-
<PAGE>
than 4.25 to 1.0 .5% 2.75%
(ii) If the Funded Debt/EBITDA Ratio
is less than 4.25 to 1.0
but is equal to or greater
than to 3.0 to 1.0 0% 2.25%
(iii) If the Funded Debt/EBITDA Ratio
is less than 3.0 to 1.0 0% 2.0%
The Applicable Margin shall be subject to reduction or increase, as
applicable and as set forth in the table above, on a quarterly basis
according to the performance of Borrower as measured by the Funded
Debt/EBITDA Ratio for the immediately preceding 4 Fiscal Quarters of
Borrower. Except as set forth in the last sentence hereof, any such
increase or reduction in the Applicable Margin provided for herein shall be
effective 3 Business Days after receipt by Lender of the applicable
financial statements and corresponding Compliance Certificate; provided,
--------
however, that any reduction in the Applicable Margin shall not apply to any
-------
LIBOR Loans outstanding on the effective date of such reduction that have
an Interest Period commencing prior to the effective date of such
reduction. If the financial statements and the Compliance Certificate of
Borrower setting forth the Funded Debt/EBITDA Ratio are not received by
Lender by the date required pursuant to Section 9.1.3 of the Agreement, the
Applicable Margin shall be determined as if the Funded Debt/EBITDA Ratio
exceeds 4.25 to 1.0 until such time as such financial statements and
Compliance Certificate are received and any Event of Default resulting from
a failure timely to deliver such financial statements or Compliance
Certificate is waived in writing by Lender; provided, however, that nothing
-------- -------
herein shall be deemed to prevent Lender from charging interest at the
Default Rate for so long as an Event of Default exists. For the final
quarter of any fiscal year of Borrower, Borrower may provide the unaudited
financial statements of Borrower, subject only to year-end adjustments, for
the purpose of determining the Applicable Margin; provided, however, that
-------- -------
if, upon delivery of the annual audited financial statements required to be
submitted by Borrower to Lender pursuant to Section 9.1.3(i) of the
Agreement, Borrower have not met the criteria for reduction of the
Applicable Margin pursuant to the terms hereinabove for the final Fiscal
Quarter of the Fiscal Year of Borrower then ended, then such Applicable
Margin reduction shall be terminated and, effective on the first day of the
month following receipt by Lender of such audited financial statements, the
Applicable Margin shall be the Applicable Margin that would have been in
effect if such reduction had not been implemented based upon the unaudited
financial statements of Borrower for the final Fiscal Quarter of the Fiscal
Year of Borrower then ended.
Applicable Law - all laws, rules and regulations applicable to the
--------------
Person, conduct, transaction, covenant or Loan Documents in question,
including all applicable common law and equitable principles; all
provisions of all applicable state and federal constitutions, statutes,
rules, regulations and orders of governmental bodies; and orders, judgments
and decrees of all courts and arbitrators.
Availability - the amount that Borrower is entitled to borrow from
------------
time to time as Revolver Loans, such amount being the difference derived
when the sum of the principal amount of Revolver Loans then outstanding
(including any amounts which Lender may have paid for the account of
Borrower pursuant to any of the Loan Documents and which have not been
reimbursed by Borrower) is subtracted from the Borrowing Base. If the
amount of the Revolver Loans outstanding is equal to or greater than the
Borrowing Base, Availability is 0.
-3-
<PAGE>
Availability Reserve - on any date of determination thereof, an amount
--------------------
equal to the sum of the following on such date: (i) a reserve for general
inventory shrinkage, whether as a result of theft or otherwise, that is
determined by Lender from time to time in its reasonable credit judgment
based upon Borrower's historical losses due to such shrinkage; (ii) any
amounts which Borrower is obligated to pay pursuant to the provisions of
the Loan Documents but does not pay when due and which Lender elects to pay
pursuant to any of the Loan Documents for the account of Borrower; (iii)
the LC Reserve; and (iv) for so long as any Event of Default exists, such
additional reserves as Lender in its sole and absolute discretion may elect
to impose from time to time, without waiving any such Event of Default or
Lender's entitlement to accelerate the maturity of the Obligations as a
consequence thereof.
Average Loan Balance - for any month, the amount obtained by adding
--------------------
the unpaid balance of Revolver Loans owing by Borrower to Lender at the end
of each day for each day during the month in question and by dividing such
sum by the number of days in such month that the Agreement is in effect.
Bank - Deutsche Bank AG, New York Branch.
----
Bankruptcy Code - title 22 of the United States Code.
---------------
Borrowing - a Borrowing consisting of Loans made on the same day and
---------
of the same Type by Lender.
Borrowing Base - on any date of determination thereof, an amount equal
--------------
to the lesser of: (a) $15,000,000, minus LC Obligations outstanding on such
-----
date, or (b) an amount equal to (i) the sum of the Accounts Formula Amount
plus the Inventory Formula Amount on such date minus (ii) the Availability
---- -----
Reserve on such date.
Borrowing Base Certificate - a Borrowing Base Certificate in the form
--------------------------
of EXHIBIT G attached hereto.
----------
Business Day - any day excluding Saturday, Sunday and any day which is
------------
a legal holiday under the laws of the State of Georgia or Missouri or is a
day on which banking institutions located in such states are closed.
Capital Expenditures - expenditures made or liabilities incurred for
--------------------
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than
one year, including the total principal portion of Capitalized Lease
Obligations.
Capitalized Lease Obligation - any Debt represented by obligations
----------------------------
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Cash Equivalents - (i) marketable direct obligations issued or
----------------
unconditionally guaranteed by the United States government and backed by
the full faith and credit of the United States government having maturities
of not more than 22 months from the date of acquisition; (ii) domestic
certificates of deposit and time deposits having maturities of not more
than 22 months from the date of acquisition, bankers' acceptances having
maturities of not more than 22 months from the date of acquisition and
overnight bank deposits, in each case issued by any commercial bank
organized under the laws of the United States, any state thereof or the
District of Columbia, which at the time of
-4-
<PAGE>
acquisition are rated A-2 (or better) by Standard & Poor's Corporation or
P-2 (or better) by Moody's Investors Services, Inc., and (unless issued by
a Lender) not subject to offset rights in favor of such bank arising from
any banking relationship with such bank; (iii) repurchase obligations with
a term of not more than 30 days for underlying securities of the types
described in clauses (i) and (ii) entered into with any financial
institution meeting the qualifications specified in clause (ii) above; and
(iv) commercial paper having at the time of investment therein or a
contractual commitment to invest therein a rating of A-2 (or better) by
Standard & Poor's Corporation or P-2 (or better) by Moody's Investors
Services, Inc., and having a maturity within 9 months after the date of
acquisition thereof.
CERCLA - the Comprehensive Environmental Response Compensation and
------
Liability Act, 42 U.S.C. (S) 9602 et seq. and its implementing regulations.
Chattel Paper - shall have the meaning ascribed to the term "chattel
-------------
paper" in the UCC.
Claims - any and all claims, demands, liabilities, obligations,
------
losses, damages, penalties, actions, judgments, suits, awards, remedial
response, costs, expenses or disbursements of any kind or nature whatsoever
(including reasonable attorneys', accountants' or consultants' fees and
expenses), whether arising under or in connection with the Loan Documents,
under any Applicable Law (including any Environmental Law) or otherwise,
that may now or hereafter be suffered or incurred by a Person.
Closing Date - the date on which all of the conditions precedent in
------------
Section 10 hereof are satisfied and the initial Loan is made or the initial
LC Guaranty is issued under the Agreement.
Collateral - all of the Property and interests in Property described
----------
in Section 6 hereof, and all other Property and interests in Property that
now or hereafter secure the payment and performance of any of the
Obligations.
Commitment Amount - $15,000,000.
-----------------
Commencement Date - shall mean (i) for the Original Division, for the
-----------------
Argus Division, and for the Jones/Phoenix Division, January 1, 1998, (ii)
for each of the Phillips, Harperprints and the Hederman Divisions, April 1,
1998, and (iii) for the McQuiddy Division, May 1, 1998.
Compliance Certificate - a Compliance Certificate to be provided by
----------------------
Borrower to Lender in accordance with, and in the form annexed as EXHIBIT B
---------
to, the Agreement.
Concentration Account - the account maintained by Borrower at First
---------------------
American National Bank or SunTrust Bank, N.A. in Atlanta, Georgia to which
all sums received by any Collecting Bank will be consolidated and
concentrated as contemplated pursuant to Section 7.2.6 hereof.
Consolidated - the consolidation in accordance with GAAP of the
------------
accounts or other items as to which such term applies.
Cumulative Basis - the EBITDA of Parent on a Consolidated basis
----------------
achieved by obtaining the sum of the EBITDA of each of the Divisions,
measured (unless otherwise specified) from the respective Commencement Date
for each Division, until such time as the Cumulative Measurement Period for
a Division is greater than four Fiscal Quarters, at which time EBITDA of
such Division shall be measured on a rolling four quarter basis.
-5-
<PAGE>
Cumulative Measurement Period - for any Division, the period
-----------------------------
commencing with the Commencement Date for such Division and ending on the
date of determination of the EBITDA of such Division.
Debt - as applied to a Person means, without duplication: (i) all
----
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such
Person as at the date as of which Debt is to be determined, including
Capitalized Lease Obligations; (ii) all obligations of other Persons which
such Person has guaranteed; (iii) all reimbursement obligations in
connection with letters of credit or letter of credit guaranties issued for
the account of such Person; and (iv) in the case of Borrower (without
duplication), the Obligations.
Deferred Acquisition Consideration - as defined in the GECC Documents.
----------------------------------
Default - an event or condition the occurrence of which would, with
-------
the lapse of time or the giving of notice, or both, become an Event of
Default.
Default Rate - a fluctuating rate per annum which, on any date, is
------------
equal to the Prime Rate in effect for such date plus 2%.
Deposit Account - a demand, time, savings, passbook, money market or
---------------
other depository account, or a certificate of deposit, maintained Borrower
with any bank, savings and loan association, credit union or other
depository institution, but excluding any payroll account, other employee
benefit account or trust account of Borrower.
Distribution - in respect of any entity, (i) any payment of any
------------
dividends or other distributions on Equity Interests of the entity (except
distributions in such Equity Interests) and (ii) any purchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
entity or any Affiliate of the entity unless made contemporaneously from
the net proceeds of the sale of Equity Interests.
Divisions - collectively, the Original Division, the Argus Division,
---------
the Jones/Phoenix Division, the Hederman Division, the McQuiddy Division,
Phillips and Harperprints (as each such term is defined in the GECC
Documents).
Document - shall have the meaning ascribed to the term "document" in
--------
the UCC.
Dollars and the sign "$" - lawful money of the United States of
------------------------
America.
Dominion Account - a special account of Lender established by Borrower
----------------
pursuant to the Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion, and over which Lender shall have sole
and exclusive access and control for withdrawal purposes.
EBITDA - for any Person for any Fiscal Quarter, without duplication,
------
the sum of the following for such period determined on a Consolidated
basis: (i) Net Income, plus (ii) depreciation, plus (iii) amortization,
---- ----
plus (iv) all interest expense, plus (v) income tax expense, plus (vi)
---- ---- ----
other non-cash charges deducted in calculating Net Income (excluding
extraordinary gains and losses).
-6-
<PAGE>
Eligible Account - an Account arising in the ordinary course of
----------------
Borrower's business from the sale of goods or rendition of services which
is payable in Dollars and which Lender, in its sole discretion, deems to be
an Eligible Account. Without limiting the generality of the foregoing, no
Account shall be an Eligible Account if: (i) it arises out of a sale made
by Borrower to a Subsidiary or an Affiliate of Borrower or to a Person
controlled by an Affiliate of Borrower; (ii) it is due or unpaid more than
90 days after the original invoice date; (iii) 50% or more of the Accounts
from the Account Debtor are not deemed Eligible Accounts hereunder; (iv)
the total unpaid Accounts of the Account Debtor exceed 20% of the net
amount of all Eligible Accounts or exceeds a credit limit established by
Lender for such Account Debtor, in each case, to the extent of such excess;
(v) any covenant, representation or warranty contained in the Agreement
with respect to such Account has been breached; (vi) the Account Debtor is
also Borrower's creditor or supplier, or the Account Debtor has disputed
liability with respect to such Account or the Account otherwise is subject
to any right of setoff, counterclaim, reserve or chargeback, to the extent
of such offset, counterclaim, disputed amount, reserve or chargeback; (vii)
it arises from a sale to an Account Debtor with its principal office,
assets or place of business outside the United States; (viii) it arises
from a sale to the Account Debtor on a bill-and-hold, guaranteed sale,
sale-or-return, sale-on-approval, consignment or any other repurchase or
return basis; (ix) the Account Debtor is the United States of America or
any department, agency or instrumentality thereof, unless Borrower assigns
its right to payment of such Account to Lender, in a manner satisfactory to
Lender, so as to comply with the Assignment of Claims Act of 2940 (32
U.S.C. (S)3727 and 42 U.S.C. (S)25), or is a state, county or municipality,
or a political subdivision or agency thereof and Applicable Law disallows
or restricts an assignment of Accounts on which it is the Account Debtor;
or (x) the Account is evidenced by chattel paper or an instrument that have
not been endorsed and delivered to Lender.
Eligible Acquisition - any transaction or series of transactions
--------------------
pursuant to or as a result of which Borrower merges or consolidates with or
otherwise acquire all or a substantial portion of the ownership interests
or assets or properties of any Person of or a going concern business (as
defined in accordance with GAAP) (an "Acquisition") with respect to which
-----------
all of the conditions set forth in Section 2.1.2 and all of the conditions
set forth below have been satisfied in full:
(a) if such Acquisition involves the purchase of stock or other
ownership interests, (i) the acquired Person shall be organized and
existing under the laws of, and shall have its primary place of business
located in, a state of the United States, and (ii) such Acquisition shall
be effected in such a manner as to ensure that the acquired Person is
promptly merged into the Borrower, with the Borrower being the surviving
entity;
(b) the primary business activity of the Acquisition target is the
same or substantially similar to the business activities of the Borrower
(that is, commercial printing) and the Acquisition target shall have been
engaged in such business for at least ten (10) years;
(c) the aggregate Acquisition Consideration payable by the Borrower
or Parent in connection with such Acquisition (other than earn-outs,
customary post-closing adjustments, escrows, holdbacks, indemnities and
seller notes permitted by Lender) shall be payable in full on the date of
such Acquisition;
(d) the ratio of the aggregate Acquisition Consideration payable by
Borrower or Parent in connection with such Acquisition to the Acquisition
target's adjusted pro forma EBITDA for the
-7-
<PAGE>
trailing twelve-month period ending the last day of the month immediately
preceding the date of such Acquisition shall not exceed 5.50 to 1.00;
(e) the amount of the Revolver Loan proceeds to be used in such
Acquisition shall be no more than four (4) times the amount of the
Acquisition target's adjusted pro forma EBITDA for the trailing twelve
month period ending the last day of the month immediately preceding the
date of such Acquisition;
(f) the Acquisition Consideration payable by Borrower or Parent in
connection with such Acquisition shall not exceed 120% of the fair market
value of the Collateral to be acquired by Borrower, as determined by an
independent appraiser selected by Lender;
(g)(i) the Borrower shall not have assumed or agreed to remain
liable with respect to any Debt (including any material tax or ERISA
liability) of a seller, except (A) to the extent permitted under Section
9.2.3, (B) obligations of a seller incurred in the ordinary course of
business and necessary or desirable to the continued operation of the
underlying properties, and (C) such other Debt as Lender shall approve, the
assumption of which shall constitute Acquisition Consideration, and (ii)
any other such liabilities or obligations not permitted to be assumed or
otherwise supported by the Borrower hereunder shall be paid in full or
release as to the assets being so acquired on or before the consummation of
such Acquisition;
(h) all assets and properties acquired in connection with any such
Acquisition shall be free and clear of any liens, charges and other
encumbrances other than as permitted under Section 9.2.5;
(i) no Event of Default or Default exists immediately prior to
such Acquisition or would occur immediately after giving effect thereto (as
determined, with respect to financial covenants, by reference to pro forma
financial statements in form and substance satisfactory to Lender);
(j) Lender and Lender's counsel shall have conducted, or caused to
be conducted by Persons selected by Lender, all such due diligence reviews,
audits and investigations (including without limitation, environmental
audits) as they shall have deemed necessary or appropriate in connection
therewith, and Lender shall be satisfied in its sole discretion with the
scope and the results thereof; and
(k) such Acquisition shall have been approved in writing by Lender
in its sole and absolute discretion.
Eligible Inventory - such Inventory of Borrower (other than packaging
------------------
materials, labels and supplies) which Lender, in its sole discretion, deems
to be Eligible Inventory. Without limiting the generality of the
foregoing, no Inventory shall be Eligible Inventory unless: (i) it is raw
materials or finished goods; (ii) it is in good, new and saleable
condition; (iii) it is not slow-moving, obsolete or unmerchantable; (iv) it
meets all standards imposed by any governmental agency or authority; (v) it
conforms in all respects to the warranties and representations set forth in
the Agreement; (vi) it is at all times subject to Lender's duly perfected,
first priority security interest and no other Lien except a Permitted Lien;
(vii) it is in Borrower's possession and control, situated at a location in
compliance with the Agreement and is not in transit or outside the
continental United States.
Environmental Certificate - the Certificate Regarding Environmental
-------------------------
Matters to be executed on or about the Closing Date by one or more Senior
Officers in favor of Lender.
-8-
<PAGE>
Environmental Laws - all federal, state and local laws, rules,
------------------
regulations, codes, ordinances, programs, permits, guidance, orders and
consent decrees, now or hereafter in effect and relating to health, safety
or environmental matters, including the CERCLA.
Environmental Release - a release as defined in CERCLA or under any
---------------------
applicable Environmental Law.
Equity Interest - the interest of (i) a shareholder in a corporation,
---------------
(ii) a partner (whether general or limited) in a partnership (whether
general, limited or limited liability), (iii) a member in a limited
liability company, or (iv) any other Person having any other form of equity
security.
ERISA - the Employee Retirement Income Security Act of 1974, as
-----
amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 11.1 hereof.
----------------
Fiscal Quarter - any of the quarterly accounting periods of Borrower
--------------
or Parent, as applicable.
Fiscal Year - the fiscal year of Borrower and its Subsidiaries for
-----------
accounting and tax purposes.
Fixed Charges -with respect to any Person, determined on a
-------------
Consolidated basis for any period the sum of (a) interest paid, and (b) all
scheduled payments by such Persons for such period on the principal of
Indebtedness of such Person, and (c) Deferred Acquisition Consideration
paid.
Fixed Charge Coverage Ratio - for any Person for any Fiscal Quarter,
---------------------------
the ratio of (a) the EBITDA of such Person, minus the non-financed Capital
-----
Expenditures of such Person, minus the cash taxes paid by such Person to
-----
(b) the Fixed Charges of such Person.
Funded Debt - with respect to any Person, all of its Debt which by
-----------
terms of the agreement governing or instrument evidencing such Debt matures
more than one year, or is directly or indirectly renewable or extendible at
the option of such Person under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of more
than one year from, the date of creation thereof, including current
maturities of long-term debt, revolving credit and short-term debt
extendible beyond one year at the option of the debtor, and shall also
include, without limitation, the Obligations and the Subordination Notes.
GAAP - generally accepted accounting principles in the United States
----
of America in effect from time to time.
GECC - General Electric Capital Corporation, a New York corporation
----
having an office at 5400 LBJ Freeway, Suite 1280, Dallas, Texas 75240.
GECC Documents - the Second Amended and Restated Loan and Security
--------------
Agreement, dated on or after the date hereof, as amended, among Borrower,
GECC, as agent for itself and other financial institutions who may be party
thereto from time to time, and all other instruments, agreements,
guarantees and documents executed or delivered in connection therewith.
GECC Eligible Acquisition - an Eligible Acquisition as defined in the
-------------------------
GECC Documents.
-9-
<PAGE>
General Intangibles - all general intangibles of Borrower, whether now
-------------------
owned or hereafter created or acquired by Borrower, including all chooses
in action, causes of action, company or other business records, deposit
accounts, inventions, blueprints, designs, patents, patent applications,
trademarks, trademark applications, trade names, trade secrets, service
marks, goodwill, brand names, copyrights, registrations, licenses,
franchises, customer lists, tax refund claims, computer programs,
operational manuals, all claims under guaranties, security interests or
other security held by or granted to Borrower to secure payment of any of
the Accounts by an Account Debtor, all rights to indemnification and all
other intangible property of every kind and nature (other than Accounts).
Governmental Approvals - means all authorizations, consents,
----------------------
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all national state or local government (whether domestic or
foreign) and any political subdivisions thereof in any other governmental,
quasi-governmental, judicial, administrative, public or statutory
instrumentality, authority, body, agency, bureau or entity.
Guarantors - Parent, Harperprints and any other Person who may
----------
hereafter guarantee payment or performance of the whole or any part of the
Obligations.
Guaranty Agreement - a guaranty that is at any time executed by a
------------------
Guarantor in favor of Lender.
Harperprints - Harperprints, Inc., a North Carolina corporation
------------
Harperprints Advances - advances by Borrower to Harperprints made in
---------------------
compliance with the provisions of Section 9.2.2. of this Agreement.
Insolvency Proceeding - any action, case or proceeding commenced by or
---------------------
against a Person, or any agreement of such Person, for (a) the entry of an
order for relief under any chapter of the Bankruptcy Code or other
insolvency or debt adjustment law (whether state, federal or foreign), (b)
the appointment of a receiver, trustee, liquidator or other custodian for
such Person or any part of its Property, (c) an assignment or trust
mortgage for the benefit of creditors of such Person, or (d) the
liquidation, dissolution or winding up of the affairs of such Person.
Instrument - shall have the meaning ascribed to the term "instrument"
----------
in the UCC.
Intellectual Property - Property constituting under any Applicable Law
---------------------
a patent, patent application, copyright, trademark, service mark, tradename
or mask work, or license or other right to use any of the foregoing.
Intellectual Property Claim - the assertion by any Person of a claim
---------------------------
(whether asserted in writing, by action, suit or proceeding or by other
means) that Borrower's ownership, use, marketing, sale or distribution of
any Inventory, Intellectual Property or other Property is violative of any
ownership, patent, copyright, trademark or other rights of such Person.
Intercreditor Agreement - the Intercreditor Agreement, dated on or
-----------------------
about the date hereof, between GECC, as Agent, and Lender.
-10-
<PAGE>
Interest Coverage Ratio - with respect to any Fiscal Quarter, the
-----------------------
ratio of for any period of (a) EBITDA of Parent, determined on a
Consolidated basis for such period to (b) interest paid by Parent or
Borrower, determined on a Consolidated basis, with respect to all Debt.
Interest Expense - for any period the amount which would, in
----------------
conformity with GAAP, be set forth opposite the caption "interest expense"
or any like caption on an income statement of Borrower.
Interest Period - as defined in Section 3.1.2 of the Agreement.
---------------
Inventory - all of Borrower's inventory, whether now owned or
---------
hereafter acquired, including all goods intended for sale or lease by
Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description
used or which might be used in connection with the manufacture, printing,
packing, shipping, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in Borrower's business; and all
documents evidencing and General Intangibles relating to any of the
foregoing, whether now owned or hereafter acquired by Borrower.
Inventory Formula Amount - on any date of determination thereof, an
------------------------
amount equal to the lesser of (i) $7,500,000 or (ii) 65% of the Value of
Eligible Inventory on such date consisting of raw materials or finished
goods.
Investment Property - all Securities (whether certificated or
-------------------
uncertificated), security entitlements, securities, accounts, commodity
contracts and commodity accounts.
LC Application - an application to Bank, in the form approved by Bank
--------------
and duly executed by Borrower and Lender as co-applicants, for the issuance
of a Letter of Credit.
LC Conditions - the following conditions, the satisfaction of each of
-------------
which is required before Lender shall be obligated to execute any LC
Application in connection with a request to Bank for the issuance of a
Letter of Credit: (i) no Default or Event of Default exists; (ii) after
giving effect to the issuance of the requested Letter of Credit and each
Letter of Credit to be issued and for which an LC Application has been
signed by Lender, the LC Obligations would not exceed $500,000, no Out-of-
Formula Condition would exist, and, if no Revolver Loans are outstanding,
the LC Obligations do not exceed the Borrowing Base; (iii) the expiry date
of the Letter of Credit does not extend beyond the earlier to occur of 365
days from the date of issuance or 10 days prior to the last day of the
Original Term or of any effective Renewal Term; and (iv) the currency in
which payment is to be made under the Letter of Credit is Dollars.
LC Documents - any and all agreements, instruments and documents
------------
(other than an LC Application or an LC Guaranty) required by Bank to be
executed by Borrower or any other Person and delivered to Bank for the
issuance of a Letter of Credit.
LC Guaranty - a guaranty executed by Lender in favor of Bank pursuant
-----------
to which Lender shall guarantee the payment or performance by Borrower of
Borrower's reimbursement obligation under each Letter of Credit in respect
of which Lender has joined with Borrower in executing an LC Application.
-11-
<PAGE>
LC Obligations - on any date of determination thereof, an amount (in
--------------
Dollars) equal to the sum of (i) all amounts then due and payable by any
Obligor on such date by reason of any payment made on or before such date
by Lender under any LC Guaranty, plus (ii) the aggregate undrawn amount of
----
all Letters of Credit then outstanding or to be issued by Bank under an LC
Application theretofore submitted to Bank.
LC Request - a written request from Borrower to Lender for Lender to
----------
join with Borrower in the execution of an LC Application for the issuance
of a Letter of Credit, which shall be in the form of EXHIBIT E to the
---------
Agreement.
LC Reserve - on any date of determination thereof, an amount equal to
----------
the sum of (i) the aggregate LC Obligations at such time with respect to
standby Letters of Credit, exclusive of any LC Obligations that are fully
secured by Cash Collateral.
Letter of Credit - a letter of credit issued by Bank for the account
----------------
of Borrower.
Leverage Ratio - for any Fiscal Quarter, the ratio of (a) the Funded
--------------
Debt of Parent, determined on a Consolidated basis, to (b) the EBITDA of
Parent, determined on a Consolidated basis (provided that, for the purposes
of this definition and to the extent applicable to the determination of the
EBITDA of Parent, if the applicable Cumulative Measurement Period for any
Division is comprised of fewer than four Fiscal Quarters, then the EBITDA
of such Division shall be determined, to the extent necessary to obtain
data for four consecutive Fiscal Quarters, by reference to the pro forma
financial statements (with agreed upon add-backs) delivered in connection
with the acquisition of said Division and approved by Lender).
LIBOR Loan - a Loan, or portion thereof, during any period in which it
----------
bears interest at a rate based upon the applicable Adjusted LIBOR Rate.
LIBOR Rate -with respect to each day of an Interest Period, the rate
----------
per annum equal to the rate for deposits in Dollars approximately equal in
principal amount to or comparable to the amount of the LIBOR Loan to which
such Interest Period relates and for a term comparable to such Interest
Period which appears on Telerate Page 3750 as of 11:00 a.m., London time, 3
Business Days prior to the commencement of such LIBOR Loan. If at least
two rates appear on such Telerate Page for such Interest Period, the "LIBOR
Rate" shall be the arithmetic mean of such rates. If the "LIBOR Rate"
cannot be determined in accordance with the immediately preceding sentences
with respect to any Interest Period, the "LIBOR Rate" with respect to each
day during such Interest Period shall be the rate per annum equal to the
rate (rounded upward to the nearest 1/100th of 1%) at which the Bank is
offered Dollar deposits at or about 10:00 A.M., New York City time, 3
Business Days prior to the beginning of such Interest Period in the
interbank eurodollar market where the eurodollar and foreign currency and
exchange operations are then being conducted by the Bank on the first day
of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of the LIBOR Loan to be outstanding during
such Interest Period. Each determination by Lender of any LIBOR Rate
shall, in the absence of manifest error, be conclusive.
Lien - any interest in Property securing an obligation owed to, or a
----
claim by, a Person other than the owner of the Property, whether such
interest is based on common law, statute or contract. The term "Lien" shall
also include reservations, exceptions, encroachments, easements, rights-of-
way, covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property. For the purpose hereof, Borrower
shall be deemed to be the owner of any Property which
-12-
<PAGE>
it has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
Loan Account - the loan account established on the books of Lender
------------
pursuant to Section 4.7 hereof.
Loan Documents - the Agreement, the Other Agreements and the Security
--------------
Documents.
Loan Year - a period commencing each calendar year on the same month
---------
and day as the date hereof and ending on the same month and day in the
immediately succeeding calendar year, with the first such period (i.e., the
----
first Loan Year) to commence on the date of this Agreement.
Loans - all loans and advances of any kind made by Lender pursuant to
-----
the Agreement.
Margin Stock - as such term is defined in Regulation U and Regulation
------------
G of the Board of Governors.
Material Adverse Effect - the effect of any event or condition which,
-----------------------
alone or when taken together with other events or conditions occurring or
existing concurrently therewith, (a) has a material adverse effect upon the
business, operations, Properties, condition (financial or otherwise) or
business prospects of any Obligor; (b) has any material adverse effect
whatsoever upon the validity or enforceability hereof or any of the other
Loan Documents; (c) has or may be reasonably expected to have any material
adverse effect upon the value of the whole or any material part of the
Collateral, the Liens of Lender with respect to the Collateral or any
material part thereof or the priority of such Liens; (d) materially impairs
the ability of Borrower or any other Obligor to perform its obligations
under this Agreement, any Guaranty Agreement or any of the other Loan
Documents, including repayment of the Obligations when due; or (e)
materially impairs the ability of Lender to enforce or collect the
Obligations or realize upon any of the Collateral in accordance with the
Loan Documents and Applicable Law.
Material Contract - an agreement to which an Obligor is a party (other
-----------------
than the Loan Documents) for which breach, termination, cancellation,
nonperformance or failure to renew could reasonably be expected to have a
Material Adverse Effect.
Maximum Rate - the maximum non-usurious rate of interest permitted by
------------
Applicable Law that at any time, or from time to time, may be contracted
for, taken, reserved, charged or received on the Debt in question or, to
the extent that at any time Applicable Law may thereafter permit a higher
maximum non-usurious rate of interest, then such higher rate.
Notwithstanding any other provision hereof, the Maximum Rate shall be
calculated on a daily basis (computed on the actual number of days elapsed
over a year of 365 or 366 days, as the case may be).
Money Borrowed - means (i) Debt arising from the lending of money by
--------------
any Person to Borrower; (ii) Debt, whether or not in any such case arising
from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures,
notes or similar instruments, or (C) upon which interest charges are
customarily paid (other than accounts payable) or that was issued or
assumed as full or partial payment for Property; (iii) Debt that
constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations
with respect to letters of credit or
-13-
<PAGE>
guaranties of letters of credit and (v) Debt of Borrower under any guaranty
of obligations that would constitute Debt for Money Borrowed under clauses
(i) through (iii) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3)
------------------
of ERISA.
Net Income (Loss) - for any Person for any period, the aggregate net
-----------------
income (or loss) from continuing operations (excluding any income (or loss)
included therein resulting from extraordinary items) of such Person and its
Subsidiaries for such period.
Note - the Revolver Note to be executed by Borrower in favor of Lender
----
on the Closing Date in substantially the form of EXHIBIT A attached hereto.
---------
Obligations - all debts, liabilities, obligations, covenants and
-----------
duties now or at any time or times hereafter owing by Borrower to Lender,
howsoever evidenced or arising, and whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary, or joint or
several, including all of the Loans and LC Obligations and all interest
payable in connection therewith and all other sums chargeable to or payable
by Borrower under the Loan Documents, any other agreement heretofore or
hereafter entered into by Borrower with or executed by Borrower in favor of
Lender, or Applicable Law.
Obligor - Borrower, each Guarantor and each other Person (other than
-------
Lender) who is at any time liable for the payment of any of the
Obligations.
Organization Documents - with respect to any Person, its charter,
----------------------
certificate or articles of incorporation, articles of organization,
operating agreement, partnership agreement or similar agreement or
instrument governing the formation or operation of such Person.
Original Term - as defined in Section 5.1 hereof.
-------------
Other Agreements - any and all agreements, instruments and documents
----------------
(other than the Agreement and the Security Documents), heretofore, now or
hereafter executed by Borrower, any Subsidiary of Borrower or any other
Person and delivered to Lender in respect of the transactions contemplated
by the Agreement, including the Intercreditor Agreement, the Subordinated
Notes and the Subordination Agreements.
Out-of-Formula Condition - as defined in Section 2.1 hereof.
------------------------
Out-of-Formula Loan - a Revolver Loan made when an Out-of-Formula
-------------------
Condition exists or the amount of any Revolver Loan which, when funded,
results in an Out-of-Formula Condition.
Parent - Master Graphics, Inc., a Tennessee corporation.
------
Parent Pledge Agreement -the Pledge Agreement, dated on or about the
-----------------------
date hereof, executed by Parent in favor of GECC, as agent, for the benefit
of itself and Lender and certain other banks or financial institution, as
from time to time amended, supplemented or modified.
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<PAGE>
Participant - each Person who shall be granted the right by Lender to
-----------
participate in any of the Loans described in the Agreement and who shall
have entered into a participation agreement in form and substance
satisfactory to Lender.
Payment Items - all checks, drafts, or other items of payment payable
-------------
to Borrower, including proceeds of any of the Collateral.
Permitted Lien - a Lien of a kind specified in Section 9.2.5 hereof.
--------------
Permitted Use - a use of proceeds of any of the Loans to pay (i) on
-------------
the Closing Date, Debt owing to First American National Bank, fees and
expenses payable to Lender under the Agreement, and (ii) after the Closing
Date, any Debt incurred in the ordinary course of Borrower's business to
the extent not prohibited by the Agreement, Capital Expenditures to the
extent permitted by the Loan Documents, principal and interest payments
with respect to any Subordinated Debt to the extent not prohibited by the
Agreement or any Subordination Agreement, Harperprint Advances, Eligible
Acquisitions and any of the Obligations.
Person - an individual, partnership, corporation, limited liability
------
company, limited liability partnership, joint stock company, land trust,
business trust, unincorporated organization or other form of business
entity, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
----
employees of Borrower that is covered by Title IV of ERISA.
Prime Rate -the "prime rate" for corporate loans from the United
----------
States financial institutions, as published by The Wall Street Journal from
-----------------------
time to time, provided that if for any reason such rate is not published by
The Wall Street Journal or if Lender elects to no longer use The Wall
----------------------- --------
Street Journal as a reference for interest rates on Prime Rate based loans
--------------
under this Agreement, the term "Prime Rate" shall mean the prime or base
rate of interest announced publicly from time to time by Citibank, N.A. (or
such other reference bank as Lender may elect) as its prime rate, which
rate of interest may not be the lowest rate of interest charged by such
bank for extensions of credit. Any change in an interest rate resulting
from a change in the Prime Rate shall become effective on the date such
change appears in The Wall Street Journal or, if the Prime Rate is no
-----------------------
longer determined by reference to The Wall Street Journal, on the date the
-----------------------
applicable reference bank announces a change in its prime rate.
Prime Rate Loan - a loan, or portion thereof, during any period in
---------------
which it bears interest at a rate based upon the Prime Rate.
Projections - Borrower's forecasted (a) balance sheets, (b) profit
-----------
and loss statements, (c) cash flow statements, and (d) capitalization
statements, all prepared on a consistent basis with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
Properly Contested - in the case of any Debt of a Obligor (including
------------------
any Tax) that is not paid as and when due or payable by reason of such
Obligor's bona fide dispute concerning its liability to pay same or
concerning the amount thereof, (i) such Debt and any Liens securing same
are being properly contested in good faith by appropriate proceedings
promptly instituted and diligently
-15-
<PAGE>
conducted; (ii) such Obligor has established appropriate reserves as shall
be required in conformity with GAAP; (iii) the non-payment of such Debt
during the period being contested by such Obligor will not have a Material
Adverse Effect and does not and will not result in a forfeiture of,
foreclosure upon or loss of any assets of such Obligor; (iv) no Lien is
imposed upon any of such Obligor's assets with respect to such Debt unless
such Lien is at all times junior and subordinate in priority to the Liens
in favor of Lender (except only with respect to property taxes that have
priority as a matter of applicable state law) and enforcement of such Lien
is stayed during the period prior to the final resolution or disposition of
such dispute; (v) if the Debt results from or is determined by the entry,
rendition or issuance against a Obligor or any of its assets of a judgment,
writ, order or decree, such judgment, writ, order or decree is stayed
pending a timely appeal or other judicial review and such Obligor shall
have established adequate reserves in accordance with GAAP for such
judgment, writ, order or decree or the same is either fully insured against
by an insurer that has not denied or reserved rights with respect to
coverage or has been bonded to Lender's satisfaction; and (vi) if such
dispute or contest is abandoned, settled or determined adversely to such
Obligor, such Obligor forthwith pays such Debt and all penalties and
interest in connection therewith.
Property - any interest in any kind of property or asset, whether
--------
real, personal or mixed, or tangible or intangible.
Purchase Money Debt - means and includes (i) Debt (other than the
-------------------
Obligations) for the payment of all or any part of the purchase price of
any fixed assets, (ii) any Debt (other than the Obligations) incurred at
the time of or within 10 days prior to or after the acquisition of any
fixed assets for the purpose of financing all or any part of the purchase
price thereof, and (iii) any renewals, extensions or refinancings thereof,
but not any increases in the principal amounts thereof outstanding at the
time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
-------------------
Money Debt, but only if such Lien shall at all times be confined solely to
the fixed assets acquired through the incurrence of the Purchase Money Debt
secured by such Lien.
Renewal Term - as defined in Section 5.1 hereof.
------------
Reportable Event - any of the events set forth in Section 4043(b) of
----------------
ERISA.
Restricted Investment - any acquisition of Property by Borrower or any
---------------------
of its Subsidiaries in exchange for cash or other Property, whether in the
form of an acquisition of Equity Interests or Debt, or the purchase or
acquisition by Borrower or any Subsidiary of any other Property, or a loan,
advance, capital contribution or subscription, except acquisitions of the
following: (a) fixed assets to be used in the business of Borrower or any
Subsidiary so long as the acquisition costs thereof constitute Capital
Expenditures permitted hereunder; (b) goods held for sale or lease or to be
used in the manufacture of goods or the provision of services by Borrower
or any Subsidiary in the ordinary course of business; (c) Current Assets
arising from the sale or lease of goods or the rendition of services in the
ordinary course of business of Borrower or any Subsidiary; (d) investments
in Subsidiaries to the extent existing on the Closing Date; (e) Cash
Equivalents; (f) GECC Eligible Acquisitions; and (g) Eligible Acquisitions
hereunder.
Revolver Loan - a Loan made by Lender as provided in Section 2.1
-------------
hereof.
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<PAGE>
Schedule of Accounts - as defined in Section 7.2.1 hereof.
--------------------
Security - shall have the same meaning as in Section 2(1) of the
--------
Securities Act of 1933.
Security Documents - each Guaranty Agreement, the Parent Pledge
------------------
Agreement and all other instruments and agreements now or at any time
hereafter securing the whole or any part of the Obligations.
Senior Officer - the chairman of the board of directors, the
--------------
president, the chief operating officer or the chief financial officer of,
or any in-house legal counsel to, Borrower.
Solvent - as to any Person, such Person (i) owns Property whose fair
-------
saleable value is greater than the amount required to pay all of such
Person's Debts (including contingent debts), (ii) is able to pay all of its
Debts as such Debts mature, (iii) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is
about to engage; and (iv) is not "insolvent" within the meaning of Section
101(32) of the Bankruptcy Code.
Statutory Reserves - on any date, the percentage (expressed as a
------------------
decimal) established by the Board of Governors which is the then stated
maximum rate for all reserves (including, any emergency, supplemental or
other marginal reserve requirements) applicable to any member bank of the
Federal Reserve System in respect to Eurocurrency Liabilities (or any
successor category of liabilities under Regulation D). Such reserve
percentage shall include, without limitation, those imposed pursuant to
said Regulation D. The Statutory Reserve shall be adjusted automatically
on and as of the effective date of any change in such percentage.
Subordinated Debt - Debt of Borrower that is subordinated to the
-----------------
Obligations in a manner satisfactory to Lender.
Subordinated Notes - collectively, (i) the $1,000,000 deferred
------------------
compensation obligation payable June 19, 2007, pursuant to the Employment
Agreement between Borrower and Dave Sutherland, (ii) the subordinated
promissory notes dated the dates set forth below in the principal amounts
set forth below issued by Borrower or Parent to the respective Subordinated
Noteholders identified below, (iii) the subordinated earn-out promissory
notes issued by Parent to the Jones Sellers (as defined in the GECC
Documents) and the Phoenix Sellers (as defined in the GECC Documents) and
(iv) any other subordinated notes issued by Borrower or Parent to a Seller
(as defined in the GECC Documents) in connection with an Eligible
Acquisition (other than the McQuiddy Note)(as defined in the GECC
Documents), all in form and substance satisfactory to Lender:
-17-
<PAGE>
Amount Date Subordinated Noteholder
------ ---- -----------------------
$3,750,000.00 June 19, 1997 Walter P. McMullen
$1,000,000.00 June 19, 1997 William J. and Brenda M. Blackwell
$ 500,000.10 December 4, 1992 Jack Gammon
$ 500,000.10 December 4, 1992 Carl Nelson
$ 100,000.00 December 4, 1992 Jack Gammon
$ 300,000.06 December 4, 1992 Harold Martin
$3,750,000.00 September 26, 1997 Argus Sellers
$1,250,000.00 December 16,1997 Jones Sellers
$1,150,000.00 December 16,1997 Phoenix Sellers
$3,471,314.64 December 16,1997 Existing Phoenix Noteholders
$ 854,219.00 March 4, 1998 Phil Phillips, Jr.
$ 559,175.47 March 31, 1998 Michael G. Harper
$ 565,824.53 March 31, 1998 Michael G. Harper
$ 193,000.00 March 31, 1998 Hederman Sellers
$1,807,000.00 March 31, 1998 Existing Hederman Noteholders
Subordinated Noteholders - as defined in the GECC Documents.
------------------------
Subordination Agreement - collectively, the separate Subordination
-----------------------
Agreements among Borrower, GECC, First American National Bank and each
Seller (other than the McQuiddy Sellers) and each Existing Noteholder (as
defined in the GECC Documents), pursuant to which the Subordinated Notes
issued to the respective Sellers and Existing Noteholders are subordinated
to the prior payment and satisfaction of the Obligations, together with the
acknowledgment and consent of such Sellers and Existing Noteholders that
Lender, upon the funding of the initial Loan hereunder, shall have the
benefit of the debt subordinations provided therein.
Subsidiary - any Person a majority of the Equity Interests of which is
----------
at the time owned, directly or indirectly, by Borrower or by one or more
other Subsidiaries or by Borrower and one or more other Subsidiaries.
Taxes - any present or future taxes, levies, imposts, duties, fees,
-----
assessments, deductions, withholdings or other charges of whatever nature,
including income, receipts, excise, property, sales, transfer, license,
payroll, withholding, social security and franchise taxes now or hereafter
imposed or levied by the United States, or any state, local or foreign
government or by any department, agency or other political subdivision or
taxing authority thereof or therein and all interest, penalties, additions
to tax and similar liabilities with respect thereto.
Termination Date - the date on which this Agreement is terminated for
----------------
any reason under Section 5 hereof.
Type - with respect to any Loan, a Prime Rate Loan or a LIBOR Loan.
----
UCC - the Uniform Commercial Code (or any successor statute) as
---
adopted and in force in the State of Georgia or, when the laws of any other
state govern the method or manner of the creation
-18-
<PAGE>
or perfection of any security interest in any of the Collateral, the
Uniform Commercial Code (or any successor statute) of such state.
Value - with reference to the value of Eligible Inventory, value
-----
determined on the basis of the lower of cost or market of such Eligible
Inventory, with the cost thereof calculated on a first-in, first-out basis.
Voting Stock - Securities of any class or classes of a corporation the
------------
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing
similar functions).
1.2. ACCOUNTING TERMS. Unless otherwise specified herein, all terms of
----------------
an accounting character used in the Agreement shall be interpreted, all
accounting determinations under the Agreement shall be made, and all financial
statements required to be delivered under the Agreement shall be prepared, in
accordance with GAAP, applied on a basis consistent with the most recent audited
Consolidated financial statements of Borrower and its Subsidiaries heretofore
delivered to Lender and using the same method for inventory valuation as used in
such audited financial statements, except for any change in which Borrower's
independent public accountants concur or as required by GAAP unless (i) Borrower
shall have objected to determining such compliance on such basis at the time of
delivery of such financial statements or (ii) Lender shall so object in writing
within 30 days after the delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to which such
objection shall not have been made. In the event of any change in GAAP that
occurs after the date hereof and that is material to Borrower, Lender shall the
right to require either that conforming adjustments be made to any financial
covenants set forth in the Agreement, or the components thereof, that are
affected by such change or that Borrower report its financial condition based on
GAAP as in effect immediately prior to the occurrence of such change.
1.3. OTHER TERMS. All other terms contained in the Agreement shall have,
-----------
when the context so indicates, the meanings provided for by the UCC to the
extent the same are used or defined therein.
1.4. CERTAIN MATTERS OF CONSTRUCTION. The terms "herein," "hereof" and
-------------------------------
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. In the computation of periods of time
from a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding." The
section titles, table of contents and list of exhibits appear as a matter of
convenience only and shall not affect the interpretation hereof. All references
to statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. All references to any Person shall mean and
include the successors and permitted assigns of such Person. All references to
any of the Loan Documents shall include any and all amendments or modifications
thereto and any and all restatements, extensions or renewals thereof. Wherever
the phrase "including" shall appear in the Agreement, such word shall be
understood to mean "including, without limitation." All references to the time
of day shall mean the time of day on the day in question in Atlanta, Georgia,
unless otherwise expressly provided in the Agreement. Whenever the phrase "to
the best of Borrower's knowledge" or words of similar import relating to the
knowledge or the awareness of Borrower are used herein, such phrase shall mean
and refer to (i) the actual knowledge of a Senior Officer of Borrower or (ii)
the knowledge that a Senior Officer would have obtained if they had engaged in
good faith and the diligent performance of their duties.
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<PAGE>
SECTION 2. CREDIT FACILITIES
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a total credit facility of up to $15,000,000
available upon Borrower's request therefor, as follows:
2.1. REVOLVER LOANS.
--------------
2.1.1. Revolver Loans. Lender agrees, during the term of this
--------------
Agreement and for so long as no Default or Event of Default exists, to make
Revolver Loans to Borrower from time to time, as requested by Borrower in the
manner set forth in Section 4.1.1 hereof, up to a maximum principal amount at
any time outstanding equal to the Borrowing Base at such time. The Revolver
Loans shall be evidence by the Note and used solely for Permitted Uses. In no
event shall any proceeds of any Revolver Loans be used to purchase or to carry,
or to reduce, retire or refinance any Debt incurred to purchase or carry, any
Margin Stock. The initial Revolver Loan shall be for an amount in excess of
$250,000. If the unpaid balance of Revolver Loans outstanding at any time should
exceed the Borrowing Base at such time (an "Out-of-Formula Condition"), such
Revolver Loans shall nevertheless constitute Obligations that are secured by the
Collateral and entitled to all of the benefits of the Loan Documents. In the
event that Lender is willing in its sole and absolute discretion to make Out-of-
Formula Loans, such Out-of-Formula Loans shall be payable ON DEMAND and shall
bear interest as provided in this Agreement for Revolver Loans generally or at
such higher rate of interest as Lender may require as a condition to making any
such Out-of-Formula Loans.
2.1.2. Acquisition Loans. Upon Borrower's satisfaction of the
-----------------
provisions of Section 2.1.1 above and each of the Acquisition Loan Conditions,
Lender agrees, during the term of this Agreement and for so long as no Default
or Event of Default exists, to make Revolver Loans to Borrower for the purpose
of financing Eligible Acquisitions. If the unpaid balance of such Acquisition
Loans should exceed the Acquisition Loan Availability Requirement at any
applicable date, the Acquisition Loans shall be payable on demand to the extent
necessary to satisfy the Acquisition Loan Availability Requirement as of such
date.
2.1.3. Voluntary Reduction in Commitment. Borrower shall have the
---------------------------------
right to permanently reduce the Commitment Amount, at any time and from time to
time upon written notice to Lender of such reduction, which notice shall specify
the amount of such reduction, shall be irrevocable once given, shall be given at
least 5 Business Days prior to the end of the month and shall be effective only
upon Lender's receipt thereof. The effective date of any voluntary reduction of
the Commitment Amount shall be the first day of a month following the month in
which such notice is received by Lender. If the Commitment Amount is reduced to
zero, then such reduction shall be deemed a termination of this Agreement by
Borrower pursuant to Section 5.2.2 hereof. The Commitment Amount, once reduced,
may not be reinstated without the consent of Lender.
2.2. LETTERS OF CREDIT. During the period from the date hereof (but
-----------------
excluding the 30th day prior to the last day of the Original Term or any
applicable Renewal Term), and provided no Default or Event of Default exists,
Lender agrees to request from Bank one or more Letters of Credit on Borrower's
request therefor, subject to the following terms and conditions:
(i) Borrower acknowledges that Bank's willingness to issue any
Letter of Credit is conditioned upon Bank's receipt of (A) the LC Guaranty
duly executed and delivered to Bank by Lender, (B) an LC Application with
respect to the requested Letter of Credit and (C) such other instruments
and agreements as Bank may customarily require for the issuance of a letter
of credit of equivalent type and amount as the requested Letter of Credit.
Lender shall have no obligation to execute any LC Guaranty or to join with
Borrower in executing an LC Application unless (x) Lender receives from
Borrower, at least three (3) Business Days prior to the date on which
Borrower desires
-20-
<PAGE>
to submit such LC Application to Bank, an LC Request, and (y) each of the
LC Conditions is satisfied on the date of Lender's receipt of the LC
Request and at the time of the requested execution of the LC Application.
Any Letter of Credit issued on the Closing Date hereof shall be for an
amount in Dollars that is greater than $250,000. If Lender shall have
complied with its obligations under this Section 2.2, Lender shall have no
liability or obligation to Borrower for any failure or refusal by Bank to
issue, for Bank's delay in issuing, or for any error of Bank in issuing any
Letter of Credit.
(ii) Letters of Credit may be requested hereunder by Borrower only
if they are to be used (i) to support obligations of Borrower incurred in
the ordinary course of its business, as presently conducted, on a standby
basis or (ii) for such other purposes as Lender may approve from time to
time in writing.
(iii) Borrower shall comply with all of the terms and conditions
imposed on Borrower by Bank, whether such terms and conditions are
contained in an LC Application or in any agreement with respect thereto,
and subject to the rights of Bank, Lender shall have the same rights and
remedies that Bank has under any agreements that Borrower may have with
Bank in addition to any rights and remedies contained in any of the Loan
Documents. Borrower agrees to reimburse Bank for any draw under any Letter
of Credit immediately upon demand, and to pay Bank the amount of all other
liabilities and obligations payable to Bank under or in connection with any
Letter of Credit immediately when due, irrespective of any claim, setoff,
defense or other right that Borrower may have at any time against Bank or
any other Person. If Lender shall pay any amount under the LC Guaranty
with respect to any Letter of Credit, then Borrower shall be absolutely and
unconditionally obligated to pay to Lender and Borrower shall be deemed to
have requested an additional Revolver Loan in the amount thereof, on the
first Business Day following the date on which payment was made by Lender
under such LC Guaranty, an amount equal to the amount paid by Lender under
such LC Guaranty together with interest from and after the date of
Lender's payment under such LC Guaranty. Borrower agrees that any claim
made upon Lender by Bank under an LC Guaranty shall be conclusive on Lender
and Borrower.
(iv) Borrower assumes all risks of the acts, omissions or misuses
of any Letter of Credit by the beneficiary thereof. The obligation of
Borrower to reimburse Lender for any payment made by Lender under an LC
Guaranty shall be absolute, unconditional and irrevocable and shall be paid
without regard to any lack of validity or enforceability of any Letter of
Credit, the existence of any claim, setoff, defense or other right which
Borrower may have at any time against a beneficiary of any Letter of
Credit, or untimely or improper honor by Bank of any draw request under a
Letter of Credit. Without limiting the generality of the foregoing, if
presentation of a demand, draft or certificate or other document does not
comply with the terms of a Letter of Credit and Borrower contends that, as
a consequence of such noncompliance it has no obligation to reimburse Bank
for any payment made with respect thereto, Borrower shall nevertheless be
obligated to reimburse Lender for any payment made under the LC Guaranty
with respect to such Letter of Credit, but without waiving any claim
Borrower may have against Bank in connection therewith.
(v) If any LC Obligations, whether or not then due or payable,
shall for any reason be outstanding (i) at any time that an Event of
Default exists, (ii) on any date that Availability is less than zero, or
(iii) on the effective date of termination of this Agreement pursuant to
Section 5 hereof, then Borrower shall, upon demand, forthwith deposit with
Lender, in cash, an amount equal to the maximum aggregate amount of all LC
Obligations then outstanding. If Borrower fails to make such deposit on
Lender's demand therefor, Lender may advance such amount as a Revolver Loan
(whether
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<PAGE>
or not an Out-of-Formula Condition is created thereby). Such cash (together
with any interest accrued thereon) shall be held by Lender in the Cash
Collateral Account and may be invested, in Lender's discretion, in Cash
Equivalents. Borrower hereby pledges, and grants to Lender a security
interest in, all of Borrower's right, title and interest in the Cash
Collateral Account and all Cash Collateral held in the Cash Collateral
Account from time to time and all proceeds thereof, as security for the
payment of the LC Obligations, whether or not then due or payable. From
time to time after cash is deposited in the Cash Collateral Account, Lender
may apply any Cash Collateral then held in the Cash Collateral Account to
the payment of any amounts, in such order as Lender may elect to the LC
Obligations, which may then be outstanding. Neither Borrower nor any other
Person claiming by, through or under or on behalf of Borrower shall have
any right to withdraw any of the funds held in the Cash Collateral Account,
including any accrued interest, provided that upon termination of all
Letters of Credit and the payment and satisfaction in full of the LC
Obligations, any Cash Collateral remaining in the Cash Collateral Account
shall be returned to Borrower unless an Event of Default then exists (in
which event Lender may apply such funds to the payment of any other
Obligations outstanding).
(vi) No Letter of Credit shall be extended or amended in any
respect that is not solely ministerial, unless all of the LC Conditions are
met as though a new Letter of Credit were being requested and issued.
(vii) In addition to and without limiting any other right or
remedy of Lender contained in this Agreement or in any of the other Loan
Documents, Lender shall be fully subrogated to the rights and remedies of
Bank under any agreement made between Borrower and Bank, including each LC
Application, relating to the issuance of any Letter of Credit, each such
agreement being incorporated herein by reference, and Lender shall be
entitled to exercise all such rights and remedies thereunder and under
Applicable Law in such regard as fully as if it were Bank. If any Letter
of Credit is drawn upon to discharge any obligation of Borrower to the
beneficiary of such Letter of Credit, in whole or in part, Lender shall be
fully subrogated to the rights of such beneficiary with respect to the
obligation of Borrower to such beneficiary discharged with the proceeds of
such Letter of Credit.
2.3. INDEMNIFICATION. In addition to any other indemnity which Borrower
---------------
may have to Bank or Lender under this Agreement, any of the other Loan Documents
or any of the LC Documents, and without limiting such other indemnification
provisions, Borrower hereby agrees to indemnify Lender from and to defend and
hold Lender harmless against any and all Claims that Lender may (other than as
the result of its own gross negligence or willful misconduct) incur or be
subject to as a consequence, directly or indirectly, of (i) the issuance of,
payment or failure to pay or any performance or failure to perform under any
Letter of Credit, LC Guaranty or (ii) any suit, investigation or proceeding as
to which Lender is or may become a party to as a consequence, directly or
indirectly, of the issuance of any Letter of Credit, any LC Guaranty or the
payment or failure to pay thereunder. This indemnity shall survive payment in
full of the Obligations and termination of this Agreement.
SECTION 3. INTEREST, FEES AND CHARGES
3.1. Interest.
--------
3.1.1. Rates of Interest. Borrower agrees to pay interest in respect
-----------------
of all unpaid principal amounts of the Loans from the respective dates such
principal amounts are advanced until paid (whether at stated maturity, on
acceleration or otherwise) at a rate per annum equal to the following applicable
rate: (a) for Loans outstanding as Prime Rate Loans, the Applicable Margin plus
----
the Prime Rate in effect from time to
-22-
<PAGE>
time; and (b) for Loans outstanding as LIBOR Rate Loans, the Applicable
Margin plus the relevant Adjusted LIBOR Rate for the applicable Interest
----
Period selected by Borrower in conformity with this Agreement. Upon determining
the Adjusted LIBOR Rate for any Interest Period requested by Borrower, Lender
shall promptly notify Borrower thereof by telephone and, if so requested by
Borrower, confirm the same in writing. Such determination shall, absent manifest
error, be final, conclusive and binding on all parties and for all purposes. The
applicable rate of interest for all Loans (or portions thereof) bearing interest
based upon the Prime Rate shall be increased or decreased, as the case may be,
by an amount equal to any increase or decrease in the Prime Rate, with such
adjustments to be effective as of the opening of business on the day that any
such change in the Prime Rate becomes effective. Interest on each Loan shall
accrue from and including the date on which such Loan is made, converted to a
Loan of another type or continued as a LIBOR Loan to (but excluding) the date of
any repayment thereof; provided, however, that, if a Loan is repaid on the same
-------- -------
day made, one day's interest shall be paid on such Loan. The Prime Rate on the
date hereof is 8.5% per annum and, therefore, the rate of interest in effect
hereunder on the date hereof, expressed in simple interest terms, is 8.5% per
annum with respect to any portion of the Loans bearing interest as a Prime Rate
Loan.
3.1.2. Interest Periods. In connection with the making or
----------------
continuation of, or conversion into, each Borrowing of LIBOR Loans, Borrower
shall select an interest period (each an "Interest Period") to be applicable to
such LIBOR Loan, which interest period shall commence on the date such LIBOR
Loan is made and shall end on a numerically corresponding day in the first,
second or third month thereafter; provided, however, that:
-------- -------
(i) the initial Interest Period for a LIBOR Loan shall commence
on the date such Loan is made (including the date of any conversion from a
Loan of another Type) and each Interest Period occurring thereafter in
respect of such Loan shall commence on the date on which the next preceding
Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day that
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period in respect of
LIBOR Loans would otherwise expire on a day that is not a Business Day but
is a day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(iii) any Interest Period that begins on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period shall expire on the last Business Day of such calendar
month;
(iv) no Interest Period with respect to any portion of principal
of a Loan shall extend beyond a date on which Borrower is required to make
a scheduled payment of such portion of principal;
(v) no Interest Period shall extend beyond the last day of the
Original Term or of any Renewal Term; and
(vi) there shall be no more than four (4) Interest Periods in
effect at any one time.
3.1.3. Conversions and Continuations.
-----------------------------
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<PAGE>
(i) Borrower may on any Business Day, subject to the giving of a
proper Notice of Conversion/Continuation as hereinafter described, elect (A) to
continue all or any part of a LIBOR Loan by selecting a new Interest Period
therefor, to commence on the last day of the immediately preceding Interest
Period, or (B) to convert all or any part of a Loan of one Type into a Loan of
another Type; provided, however, that no outstanding Loan may be converted into
-------- -------
a LIBOR Loan or continued as a LIBOR Loan after the expiration of the Interest
Period applicable thereto when any Default or Event of Default exists. Any
conversion of a LIBOR Loan into a Prime Rate Loan shall be made on the last day
of the Interest Period for such LIBOR Loan.
(ii) Whenever Borrower desires to convert or continue Loans under
Section 3.1.3(i), Borrower shall give Lender written notice (or telephonic
notice promptly confirmed in writing) substantially in the form of EXHIBIT D,
---------
signed by an authorized officer of Borrower, on the requested conversion date by
11:00 a.m., in the case of a conversion into Prime Rate Loans, and by 11:00 a.m.
at least 2 Business Days before the requested conversion or continuation date,
in the case of a conversion into or continuation of LIBOR Loans. Each such
Notice of Conversion/Continuation shall be irrevocable and shall specify the
aggregate principal amount of the Loans to be converted or continued, the date
of such conversion or continuation (which shall be a Business Day) and whether
the Loans are being converted into or continued as LIBOR Loans (and, if so, the
duration of the Interest Period to be applicable thereto) or Prime Rate Loans.
If, upon the expiration of any Interest Period in respect of any LIBOR Loans,
Borrower shall have failed to deliver the Notice of Conversion/Continuation,
Borrower shall be deemed to have elected to convert such LIBOR Loans to Prime
Rate Loans.
3.1.4. Interest Rate Not Ascertainable. If Lender shall determine
-------------------------------
(which determination shall, absent manifest error, be final, conclusive and
binding upon all parties) that on any date for determining the Adjusted LIBOR
Rate for any Interest Period, by reason of any changes arising after the date of
this Agreement affecting the London interbank market or Lender's or Bank's
position in such market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition of
Adjusted LIBOR Rate, then, and in any such event, Lender shall forthwith give
notice (by telephone confirmed in writing) to Borrower of such determination.
Until Lender notifies Borrower that the circumstances giving rise to the
suspension described herein no longer exist, the obligation of Lender to make
LIBOR Loans shall be suspended, and such affected Loans then outstanding shall,
at the end of the then applicable Interest Period or at such earlier time as may
be required by Applicable Law, bear the same interest as Prime Rate Loans.
3.1.5. Default Rate of Interest. Interest shall accrue at the Default
------------------------
Rate (i) with respect to the principal amount of any portion of the Obligations
(and, to the extent permitted by Applicable Law, all past due interest) that is
not paid on the due date thereof (whether due at stated maturity, on demand,
upon acceleration or otherwise), until such amount is paid in full, and (ii)
with respect to the principal amount of all of the Obligations (and, to the
extent permitted by Applicable Law, all past due interest), upon the earliest to
occur of (x) Borrower's receipt of notice of Lender's election to charge the
Default Rate based upon the existence of any Event of Default or (y) the
commencement by or against Borrower of an Insolvency Proceeding, whether or not
under the circumstances described in either clause (i) or (ii) hereof Lender
elects to accelerate the maturity or demand payment of any of the Obligations.
To the fullest extent permitted by Applicable Law, the Default Rate shall apply
and accrue on any judgment entered with respect to any of the Obligations and
with respect to the unpaid principal amount of the Obligations during any
Insolvency Proceeding of Borrower. Borrower acknowledges that the cost and
expense to Lender attendant upon the occurrence of an Event of Default are
difficult to ascertain or estimate and that the Default Rate is a fair and
reasonable estimate to compensate Lender for such added cost and expense.
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<PAGE>
3.2. FEES.
----
3.2.1. Origination Fee. Borrower shall pay to Lender an origination
---------------
fee of $ 100,000, which shall be paid concurrently with funding of the initial
Loan hereunder.
3.2.2. Unused Line Fee. Borrower shall pay to Lender a monthly fee
---------------
equal to .125% per annum of the amount by which the Average Loan Balance for any
month (or portion thereof that this Agreement is in effect) is less than
$15,000,000, such fee to be paid on the first day of the following month; but if
this Agreement is terminated on a day other than the first day of a month, then
any such fee payable for the month in which termination shall occur shall be
paid on the effective date of such termination.
3.2.3. Audit and Appraisal Fees. Borrower shall reimburse Lender for
------------------------
all costs and expenses incurred in connection with audits and appraisals of any
Obligor's books and records and such other matters as Lender shall deem
appropriate. At any time when an Event of Default does not exist, Borrower
shall not be obligated to reimburse Lender for such costs and expenses in excess
of $3,000 per location per year.
3.2.4. Letter of Credit Charges. Borrower shall pay to Bank all fees
------------------------
and charges associated with Bank's issuance, renewal, amendment and
administration of each Letter of Credit as follows.
(1) for Bank's issuance of a standby Letter of Credit, a fee
equal to the greater of (a) $200 or (b) 2.0% per annum of the face amount
of such Letter of Credit, payable upon the issuance date and on each
anniversary of such date thereafter for so long as such Letter of Credit
remains outstanding;
(2) for Bank's issuance of a documentary Letter of Credit, a fee
equal to the greater of (a) $200 or (b) 1.0% per annum of the face amount
of such Letter of Credit, payable upon the issuance date and on each
anniversary of such date thereafter for so long as such Letter of Credit
remains outstanding;
(3) for Bank's amendment of a Letter of Credit, a fee of $75 and
for Bank's renewal or cancellation of a Letter of Credit, a fee of $100.
3.2.5. General Provisions Relating to Fees. All fees shall be fully
-----------------------------------
earned by Lender when due and payable and, except as otherwise set forth herein
or required by Applicable Law, shall not be subject to refund, rebate or
proration. All fees provided for in Section 3.2 hereof are and shall be deemed
to be for compensation for services and are not, and shall not be deemed to be,
interest or any other charge for the use, forbearance or detention of money.
3.3. COMPUTATION OF INTEREST AND FEES. All interest, fees and other
--------------------------------
charges hereunder shall be calculated daily and shall be computed on the actual
number of days elapsed over a year of 360 days. For the purpose of computing
interest hereunder, all Payment Items received by Lender shall be deemed applied
by Lender on account of the Obligations (subject to final payment of such items)
on the first Business Day after receipt by Lender of such items in Lender's
account located in Atlanta, Georgia, and Lender shall be deemed to have received
such Payment Item on the date specified in Section 4.5 hereof.
3.4. REIMBURSEMENT OF EXPENSES. If, at any time or times regardless of
-------------------------
whether or not an Event of Default then exists, Lender incurs legal or
accounting expenses or any other costs or out-of-pocket expenses
-25-
<PAGE>
in connection with (i) the negotiation and preparation of this Agreement or any
of the other Loan Documents, any amendment of or modification of this Agreement
or any of the other Loan Documents, or, in the event the Commitment Amount is
increased after the date hereof, any sale or attempted sale of any interest
herein to a Participant; (ii) the administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby; (iii)
any litigation, contest, dispute, suit, proceeding or action (whether instituted
by Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the other Loan Documents or Borrower's affairs; (iv)
any attempt to enforce any rights of Lender against Borrower or any other Person
which may be obligated to Lender by virtue of this Agreement or any of the other
Loan Documents, including the Account Debtors; or (v) any attempt to inspect
(subject to limits as may be applicable under Section 3.2.3 hereof), verify,
protect, preserve, perfect or continue the perfection of Lender's Liens upon,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral; then all such reasonable legal and accounting expenses, other costs
and out of pocket expenses of Lender shall be charged to Borrower. All amounts
chargeable to Borrower under this Section 3.4 shall be Obligations secured by
all of the Collateral, shall be payable on demand to Lender. Borrower shall also
reimburse Lender for expenses incurred by Lender in its administration of the
Collateral to the extent and in the manner provided in Section 6 hereof.
3.5. BANK CHARGES. Borrower shall pay to Lender, ON DEMAND, any and all
------------
fees, costs or expenses which Lender or any Participant pays to a bank or other
similar institution (including, any fees paid by Lender to any Participant)
arising out of or in connection with (i) the forwarding to Borrower or any other
Person on behalf of Borrower, by Lender or any Participant, of proceeds of Loans
made by Lender to Borrower pursuant to this Agreement and (ii) the depositing
for collection, by Lender or any Participant, of any check or item of payment
received or delivered to Lender or any Participant on account of the
Obligations. Borrower acknowledges and agrees that Lender may charge such
costs, fees and expenses to Borrower based upon Lender's good faith estimate of
such costs, fees and expenses as they are incurred by Lender, subject to later
adjustment for the amount actually incurred.
3.6. MAXIMUM INTEREST. Regardless of any provision contained in any of
----------------
the Loan Documents, in no contingency or event whatsoever shall the aggregate of
all amounts that are contracted for, charged or received by Lender pursuant to
the terms of any of the Loan Documents and that are deemed interest under
Applicable Law exceed the highest rate permissible under any Applicable Law. No
agreements, conditions, provisions or stipulations contained in any of the Loan
Documents or the exercise by Lender of the right to accelerate the payment or
the maturity of all or any portion of the Obligations, or the exercise of any
option whatsoever contained in any of the Loan Documents, or the prepayment by
Borrower of any of the Obligations, or the occurrence of any contingency
whatsoever, shall entitle Lender to charge or receive in any event, interest or
any charges, amounts, premiums or fees deemed interest by Applicable Law (such
interest, charges, amounts, premiums and fees referred to herein collectively as
"Interest") in excess of the Maximum Rate and in no event shall Borrower be
obligated to pay Interest exceeding such Maximum Rate, and all agreements,
conditions or stipulations, if any, which may in any event or contingency
whatsoever operate to bind, obligate or compel Borrower to pay Interest
exceeding the Maximum Rate shall be without binding force or effect, at law or
in equity, to the extent only of the excess of Interest over such Maximum Rate.
If any Interest is charged or received in excess of the Maximum Rate ("Excess"),
Borrower acknowledges and stipulates that any such charge or receipt shall be
the result of an accident and bona fide error, and such Excess, to the extent
received, shall be applied first to reduce the principal Obligations and the
balance, if any, returned to Borrower, it being the intent of the parties hereto
not to enter into a usurious or otherwise illegal relationship. The right to
accelerate the maturity of any of the Obligations does not include the right to
accelerate any interest that has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned interest in the
event of any such acceleration. Borrower recognizes that, with fluctuations in
the rates of
-26-
<PAGE>
interest set forth in Section 3.1.1 of this Agreement and the Maximum Rate, such
an unintentional result could inadvertently occur. All monies paid to Lender
hereunder or under any of the other Loan Documents, whether at maturity or by
prepayment, shall be subject to any rebate of unearned interest as and to the
extent required by Applicable Law. By the execution of this Agreement, Borrower
covenants that (i) the credit or return of any Excess shall constitute the
acceptance by Borrower of such Excess, and (ii) Borrower shall not seek or
pursue any other remedy, legal or equitable, against Lender, based in whole or
in part upon contracting for, charging or receiving any Interest in excess of
the Maximum Rate. For the purpose of determining whether or not any Excess has
been contracted for, charged or received by Lender, all interest at any time
contracted for, charged or received from Borrower in connection with any of the
Loan Documents shall, to the extent permitted by Applicable Law, be amortized,
prorated, allocated and spread in equal parts throughout the full term of the
Obligations. Borrower and Lender shall, to the maximum extent permitted under
Applicable Law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as Interest and (ii) exclude voluntary prepayments and the
effects thereof. The provisions of this Section shall be deemed to be
incorporated into every Loan Document (whether or not any provision of this
Section is referred to therein). All such Loan Documents and communications
relating to any Interest owed by Borrower and all figures set forth therein
shall, for the sole purpose of computing the extent of Obligations, be
automatically recomputed by Borrower, and by any court considering the same, to
give effect to the adjustments or credits required by this Section 3.6.
3.7. ILLEGALITY. Notwithstanding anything to the contrary contained
----------
elsewhere in this Agreement, if (i) any change in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful for Lender to make or maintain a
LIBOR Loan or to give effect to its obligations as contemplated hereby with
respect to a LIBOR Loan or (ii) at any time Lender determines that the making or
continuance of any LIBOR Loan has become impracticable as a result of a
contingency occurring after the date hereof which adversely affects the London
interbank market or the position of Lender or Bank in such market, then, by
written notice to Borrower, Lender may (1) declare that LIBOR Loans will not
thereafter be made by Lender, whereupon any request by Borrower for a LIBOR Loan
shall be deemed a request for a Prime Rate Loan unless Lender's declaration
shall be subsequently withdrawn; and (2) require that all outstanding LIBOR
Loans made by Lender be converted to Prime Rate Loans, under the circumstances
of clause (i) or (ii) of this Section 3.7 insofar as Lender determines the
continuance of LIBOR Loans to be impracticable, in which event all such LIBOR
Loans shall be automatically converted to Prime Rate Loans as of the date of
Borrower's receipt of the aforesaid notice from Lender.
3.8. INCREASED COSTS. If, by reason of (a) the introduction of or any
---------------
change (including any change by way of imposition or increase of Statutory
Reserves or other reserve requirements) in or in the interpretation of any law
or regulation, or (b) the compliance with any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising control over banks or financial institutions generally (whether or
not having the force of law):
(i) Lender shall be subject after the date hereof to any Taxes,
duty or other charge with respect to any LIBOR Loan or its obligation to
make LIBOR Loans, or a change shall result in the basis of taxation or
payment to Lender of the principal of or interest on its LIBOR Loans or its
obligation to make LIBOR Loans (except for changes in the rate of tax on
the overall net income of Lender imposed by the jurisdiction in which
Lender's principal executive office is located); or
(ii) any reserve (including any imposed by the Board of Governors),
special deposits or similar requirement against assets of, deposits with or
for the account of, or credit extended by, Lender
-27-
<PAGE>
shall be imposed or deemed applicable or any other condition affecting its
LIBOR Loans or its obligation to make LIBOR Loans shall be imposed on
Lender or the London interbank market;
and as a result thereof there shall be any increase in the cost to Lender of
agreeing to make or making, funding or maintaining LIBOR Loans (except to the
extent already included in the determination of the applicable Adjusted LIBOR
Rate for LIBOR Loans), or there shall be a reduction in the amount received or
receivable by Lender, then Borrower shall from time to time, upon written notice
from and demand by Lender (with a copy of such notice and demand to Lender), pay
to Lender, within 5 Business Days after the date specified in such notice and
demand, an additional amount sufficient to indemnify Lender against such
increased cost. A certificate as to the requirement that imposes the increased
cost, the amount of such increased cost and showing in reasonable detail the
basis for the computation thereof submitted to Borrower by Lender, shall, absent
manifest error, be final, conclusive and binding for all purposes.
If Lender shall advise Borrower at any time that, because of the
circumstances described hereinabove in this Section 3.8 or any other
circumstances arising after the date of this Agreement affecting Lender or the
London interbank market or Lender's or Bank's position in such market, the
Adjusted LIBOR Rate, as determined by Lender, will not adequately and fairly
reflect the cost to Lender of funding LIBOR Loans, then, and in any such event:
(i) Lender shall forthwith give written notice to Borrower of such
event;
(ii) Borrower's right to request and Lender's obligation to make
LIBOR Loans shall be immediately suspended and Borrower's right to continue
a LIBOR Loan as such beyond the then applicable Interest Period shall also
be suspended; and
(iii) Lender shall make a Prime Rate Loan as part of the requested
Borrowing of LIBOR Loans, which Prime Rate Loan shall, for all purposes, be
considered part of such Borrowing.
For purposes of this Section 3.8, all references to Lender shall be deemed
to include any bank holding company or bank parent of Lender.
3.9. CAPITAL ADEQUACY. If after the date hereof Lender determines that
----------------
(a) the adoption of any Applicable Law regarding capital requirements for banks
or bank holding companies or the subsidiaries thereof, (b) any change in the
interpretation or administration of any such Applicable Law, any governmental
authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or (c) compliance by Lender or its holding company with
any request or directive of any such governmental authority, central bank or
comparable agency regarding capital adequacy (whether or not having the force of
law), has the effect of reducing the return on Lender's capital to a level below
that which Lender could have achieved (taking into consideration Lender's and
its holding company's policies with respect to capital adequacy immediately
before such adoption, change or compliance and assuming that Lender's capital
was fully utilized prior to such adoption, change or compliance) but for such
adoption, change or compliance as a consequence of Lender's commitment to make
the Loans pursuant hereto by any amount deemed by Lender to be material,
Borrower shall pay to Lender, as an additional fee from time to time, on demand,
such amount as Lender certifies to be the amount that will compensate Lender for
such reduction. A certificate of Lender claiming entitlement to compensation as
set forth herein will be conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to Lender (including
the basis for Lender's determination of such amount), and the method by which
such amounts were determined. In determining such amount, Lender may use any
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<PAGE>
reasonable averaging and attribution method. For purposes of this Section 3.9,
all references to Lender shall be deemed to include any bank holding company or
bank parent of Lender.
3.10. FUNDING LOSSES. Borrower shall be obligated to compensate Lender,
--------------
upon Lender's written request (which request shall set forth the basis for
requesting such amounts and shall, absent manifest error, be final, conclusive
and binding upon all parties hereto), for all losses, expenses and liabilities
(including any interest paid by Lender to lenders of funds borrowed by Lender to
make or carry its LIBOR Loans to the extent not recovered by Lender in
connection with the re-employment of such funds), which Lender may sustain: (i)
if for any reason (other than a default by Lender) a Borrowing of, or conversion
to or continuation of, LIBOR Loans does not occur on the date specified therefor
in a Notice of Borrowing or Notice of Conversion/ Continuation (whether or not
withdrawn), (ii) if any repayment (including any conversions pursuant to Section
3.1.3 hereof) of any its LIBOR Loans occurs on a date that is not the last day
of an Interest Period applicable thereto, or (iii) if, for any reason, Borrower
defaults in its obligation to repay LIBOR Loans when required by the terms of
this Agreement. For purposes of this Section 3.10, all references to Lender
shall be deemed to include any bank holding company or bank parent of Lender.
The calculations of all amounts payable to Lender under this Section 3.10 shall
be made as though Lender had actually funded or committed to fund its LIBOR Loan
through the purchase of an underlying deposit in an amount equal to the amount
of such LIBOR Loan and having a maturity comparable to the relevant Interest
Period for such LIBOR Loan; provided, however, Lender may fund its LIBOR Loans
-------- -------
in any manner it deems fit and the foregoing assumption shall be utilized only
for the calculation of amounts payable under this Section 3.10.
SECTION 4. LOAN ADMINISTRATION
4.1. MANNER OF BORROWING REVOLVER LOANS. Borrowings under the credit
----------------------------------
facility established pursuant to Section 1.1 hereof shall be as follows:
4.1.1. Notice of Borrowing.
-------------------
(i) Whenever Borrower desires to obtain a Revolver Loan under Section
2.1 of this Agreement (other than a Borrowing resulting from a conversion or
continuation pursuant to Section 3.1.3), Borrower shall give Lender prior
written notice (or telephonic notice promptly confirmed in writing) of such
Borrowing request (a "Notice of Borrowing"), which shall be in the form of
EXHIBIT C annexed hereto and signed by an authorized officer of Borrower. Such
- ---------
Notice of Borrowing shall be given by Borrower to Lender no later than 11:00 a.m
Atlanta, Georgia time. (a) on the Business Day of the requested funding date of
such Borrowing, in the case of a Prime Rate Loan, and (b) at least 2 Business
Days prior to the requested funding date of such Borrowing, in the case of a
LIBOR Loan. Notices received after 11:00 a.m. shall be deemed received on the
next Business Day. Revolver Loans made by Lender on the Closing Date shall be
in the principal amount of at least $250,000 and shall be made as Prime Rate
Loans and thereafter may be made or continued as, or converted into, Prime Rate
Loans or LIBOR Loans. Each Notice of Borrowing (or telephonic notice thereof)
shall be irrevocable and shall specify (a) the principal amount of the
Borrowing, (b) the date of Borrowing (which shall be a Business Day), (c)
whether the Borrowing is to consist of Prime Rate Loans or LIBOR Loans, (d) in
the case of LIBOR Loans, the duration of the Interest Period to be applicable
thereto, and (e) the account of Borrower to which the proceeds of such Borrowing
are to be disbursed. Borrower may not request any LIBOR Loans if a Default or
Event of Default exists.
(ii) Unless payment is otherwise timely made by Borrower, the becoming
due of any amount required to be paid under this Agreement or any of the other
Loan Documents as principal, accrued interest, fees or other charges shall be
deemed irrevocably to be a request for Revolver Loans on the due date
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<PAGE>
of, and in an aggregate amount required to pay, such principal, accrued
interest, fees or other charges, and the proceeds of such Revolver Loans may be
disbursed by way of direct payment of the relevant Obligation and shall bear
interest as Prime Rate Loans. Lender shall have no obligation to Borrower to
honor any deemed request for a Revolver Loan, but may do so in its discretion
without regard to the existence or creation of, and without being deemed to have
waived, any Default, Event of Default or Out-of-Formula Condition.
(iii) As an accommodation to Borrower, Lender may permit telephonic
requests for Borrowings and electronic transmittal of instructions,
authorizations, agreements or reports to Lender by Borrower; provided, however,
-------- -------
that Borrower shall confirm each such telephonic request for a Borrowing of
LIBOR Loans by delivery of the required Notice of Borrowing to Lender by
facsimile transmission promptly, but in no event later than 5:00 p.m. on the
same day. Unless Borrower specifically directs Lender in writing not to accept
or act upon telephonic or electronic communications from Borrower, Lender shall
not have any liability to Borrower for any loss or damage suffered by Borrower
as a result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to Lender by
Borrower and Lender shall not have any duty to verify the origin of any such
communication or the identity or authority of the Person sending it.
4.1.2. Disbursement Authorization. Borrower hereby irrevocably
--------------------------
authorizes Lender to disburse the proceeds of each Revolver Loan requested, or
deemed to be requested pursuant to Section 4.1.1, as follows: (i) the proceeds
of each Revolver Loan requested under Section 4.1.1(i) shall be disbursed by
Lender in accordance with the terms of the written disbursement letter from
Borrower in the case of the initial Borrowing, and, in the case of each
subsequent Borrowing, by wire transfer to such bank account as may be agreed
upon by Borrower and Lender from time to time or elsewhere if pursuant to a
written direction from Borrower; and (ii) the proceeds of each Revolver Loan
requested under Section 4.1.1(ii) shall be disbursed by Lender by way of direct
payment of the relevant interest or other Obligation.
4.2. SPECIAL PROVISIONS GOVERNING LIBOR LOANS.
----------------------------------------
4.2.1. Number of LIBOR Loans. In no event may the number of LIBOR
---------------------
Loans outstanding at any time to Lender exceed four (4).
4.2.2. Minimum Payments. Each election of LIBOR Loans pursuant to
----------------
Section 4.1.1(i), and each continuation of or conversion to LIBOR Loans pursuant
to Section 3.1.3 hereof, shall be in a minimum amount of $500,000 with respect
to any portion of the Loans that bear interest as a LIBOR Loan and integral
multiples of $100,000 in excess of that amount.
4.2.3. LIBOR Lending Office. Lender's initial LIBOR Lending Office
--------------------
is set forth opposite its name on the signature pages hereof. Lender shall have
the right at any time and from time to time to designate a different office of
itself or of any Affiliate as Lender's LIBOR Lending Office, and to transfer any
outstanding LIBOR Loans to such LIBOR Lending Office. No such designation or
transfer shall result in any liability on the part of Borrower for increased
costs or expenses under Sections 3.8, 3.9, 3.10 or otherwise resulting solely
from such designation or transfer. Increased costs for expenses resulting from
a change in Applicable Law occurring subsequent to any such designation or
transfer shall be deemed not to result solely from such designation or transfer.
4.3. REPAYMENT OF REVOLVER LOANS.
---------------------------
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<PAGE>
4.3.1. Payment of Principal. The outstanding principal amounts
--------------------
with respect to the Revolver Loans shall be due and payable in Dollars without
any offset or counterclaim as follows:
(i) Any portion of the Revolver Loans consisting of the principal
amount of Prime Rate Loans shall be paid by Borrower to Lender, unless timely
converted to a LIBOR Loan in accordance with this Agreement, immediately upon
(a) each receipt by Borrower or Lender of any proceeds or payments of any of the
Collateral, to the extent of such proceeds or payments, and (b) the Termination
Date.
(ii) Any portion of the Revolver Loans consisting of the principal
amount of LIBOR Loans shall be paid by Borrower to Lender, unless converted to a
Prime Rate Loan or continued as a LIBOR Loan in accordance with the terms of
this Agreement, upon the earlier of (a) the last day of the Interest Period
applicable thereto or (b) the Termination Date. In no event shall Borrower be
authorized to pay any LIBOR Loan prior to the last day of the Interest Period
applicable thereto unless (x) otherwise agreed in writing by Lender or Borrower
is otherwise expressly authorized or required by any other provision of this
Agreement to pay any LIBOR Loan outstanding on a date other than the last day of
the Interest Period applicable thereto, and (y) Borrower pays to Lender
concurrently with any prepayment of a LIBOR Loan any amount due Lender under
Section 3.10 hereof as a result of such prepayment.
(iii) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, if an Out-of-Formula Condition shall exist, Borrower shall, ON
DEMAND, repay the outstanding Revolver Loans that are Prime Rate Loans in an
amount sufficient to reduce the aggregate unpaid principal amount of all
Revolver Loans by an amount equal to such excess; and, if such payment of Prime
Rate Loans is not sufficient to cure the Out-of-Formula Condition, then Borrower
shall immediately either (a) deposit with Lender, for application to any
outstanding Revolver Loans bearing interest as LIBOR Loans as the same become
due and payable at the end of the applicable Interest Periods, cash in an amount
sufficient to cure such Out-of-Formula Condition to be held by Lender, but
subject to Lender's Lien thereon and rights of offset with respect thereto, or
(b) pay the Revolver Loans outstanding that bear interest as LIBOR Loans to the
extent necessary to cure such Out-of-Formula Condition and also pay to Lender
any and all amounts required by Section 3.10 hereof to be paid by reason of the
prepayment of a LIBOR Loan prior to the last day of the Interest Period
applicable thereto.
4.3.2. Payment of Interest. Interest accrued on the Revolver Loans
-------------------
shall be due and payable on (i) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month, with respect to any Revolver Loan (whether a Prime Rate Loan or
LIBOR Loan), (ii) the last day of the applicable Interest Period in the case of
a LIBOR Loan, and (iii) on the Termination Date. With respect to any Prime Rate
Loan converted into a LIBOR Loan pursuant to Section 3.1.3 on a day when
interest would not otherwise have been payable with respect to such Prime Rate
Loan, accrued interest to the date of such conversion on the amount of such
Prime Rate Loan so converted shall be paid on the conversion date.
4.4. PAYMENT OF OTHER OBLIGATIONS. The balance of the Obligations
----------------------------
requiring the payment of monies shall be payable by Borrower to Lender in
Dollars and without offset, defense or counterclaim, as and when provided in the
Loan Documents, or, if no date of payment is otherwise specified in the Loan
Documents, on demand.
4.5. APPLICATION OF PAYMENTS AND COLLECTIONS. All Payment Items received
---------------------------------------
by Lender by 12:00 noon, Atlanta, Georgia time, on any Business Day shall be
deemed received on that Business Day. All Payment Items received after 12:00
noon, Atlanta, Georgia time, on any Business Day shall be deemed
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<PAGE>
received on the following Business Day. If as the result of collections of
Accounts as authorized by Section 7.2.7 hereof a credit balance exists in the
Loan Account, such credit balance shall not accrue interest in favor of
Borrower, but shall be available to Borrower at any time or times for so long as
no Default or Event of Default exists.
4.6. ALL LOANS TO CONSTITUTE ONE OBLIGATION. The Loans shall constitute
--------------------------------------
one general Obligation of Borrower and (unless and to the extent otherwise
expressly provided in any of the Security Documents) shall be secured by
Lender's Lien upon all of the Collateral.
4.7. LOAN ACCOUNT. Lender shall establish an account on its books (the
------------
"Loan Account") and shall enter all Loans as debits to the Loan Account and
shall also record in the Loan Account all payments made by Borrower on any
Obligations and all proceeds of Collateral which are finally paid to Lender, and
may record therein, in accordance with customary accounting practice, other
debits and credits, including interest and all charges and expenses properly
chargeable to Borrower.
4.8. STATEMENTS OF ACCOUNT. Lender will account to Borrower monthly with
---------------------
a statement of Loans, charges and payments made pursuant to this Agreement, and
such accounting rendered by Lender shall be deemed rebuttably conclusive upon
Borrower unless Lender is notified by Borrower in writing to the contrary within
30 days after the date each accounting is deemed to have been sent pursuant to
Section 12.8. Such notice shall only be deemed an objection to those items
specifically objected to therein.
4.9. MARSHALLING; PAYMENTS SET ASIDE. Lender shall be under no
-------------------------------
obligation to marshall any assets in favor of Borrower or any other Obligor or
against or in payment of any or all of the Obligations. To the extent that
Borrower makes a payment to Lender or Lender receives payment from the proceeds
of any Collateral or exercises its right of setoff, and such payment or the
proceeds of such enforcement or setoff (or any part thereof) are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other Person, then to the extent of any
such recovery, the obligation or part thereof originally intended to be
satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred. The provisions of the immediately
preceding sentence of this Section 4.9 shall survive any termination of this
Agreement and payment in full of the Obligations.
SECTION 5. TERM AND TERMINATION
5.1. TERM OF AGREEMENT. Subject to Lender's right to cease making Loans
-----------------
to Borrower upon or after the occurrence of any Default or Event of Default,
this Agreement shall be in effect for a period of three (3) years from the date
hereof, through August 20, 2001 (the "Original Term"), and this Agreement shall
automatically renew itself for one-year periods thereafter (each a "Renewal
Term"), unless terminated as provided in Section 5.2 hereof.
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<PAGE>
5.2. TERMINATION.
-----------
5.2.1. Termination by Lender. Upon at least 60 days prior written
---------------------
notice to Borrower, Lender may terminate this Agreement as of the last day of
the Original Term or the then current Renewal Term and Lender may terminate this
Agreement without notice upon or after the occurrence of an Event of Default;
provided, however, that if John P. Miller or Robert Diehl cease to serve as
- -------- -------
Senior Officers of Borrower Lender may terminate this Agreement upon 120 days
prior written notice to Borrower. This Agreement shall automatically terminate
as provided in Section 11.2 hereof.
5.2.2. Termination by Borrower. Upon at least 60 days prior
-----------------------
written notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination by Borrower shall be effective until
- -------- -------
Borrower has satisfied all of the Obligations and executed in favor of Lender.
Any notice of termination given by Borrower shall be irrevocable unless Lender
otherwise agrees in writing. Borrower may elect to terminate this Agreement in
its entirety only. For purposes hereof, the Obligations shall not be deemed to
have been satisfied until all Obligations for the payment of money have been
paid to Lender in same day funds and all Obligations that are at the time in
question contingent (including, all LC Obligations that exist by virtue of an
outstanding Letter of Credit) have been fully cash collateralized in favor and
to the satisfaction of Lender or Lender has received as beneficiary a direct pay
letter of credit in form and from an issuing bank acceptable to Lender and
providing for direct payment to Lender of all such contingent Obligations at the
time they become fixed (including reimbursement of all sums paid by Lender under
any LC Guaranty). No section of this Agreement or Type of Loan available
hereunder may be terminated singly.
5.2.3. Termination Charges. On the effective date of termination
-------------------
of this Agreement for any reason, Borrower shall pay to Lender (in addition to
the then outstanding principal, accrued interest, fees and other charges owing
under the terms of this Agreement and any of the other Loan Documents), as
liquidated damages for the loss of the bargain and not as a penalty, an amount
equal to $150,000 if termination occurs during the first Loan Year; and $75,000
if termination occurs during the second Loan Year. No termination charge shall
be payable if termination occurs at any time after the last day of the second
Loan Year.
5.2.4. Effect of Termination. All of the Obligations shall be
---------------------
immediately due and payable upon the effective date of termination by Lender or,
in the case of a termination by Borrower, upon the date specified in Borrower's
notice of termination of this Agreement as the effective date of such
termination. On the effective date of any termination (whether by Lender or
Borrower), Lender shall have no obligation to make any Loans, join in any LC
Application or issue any LC Guaranty or otherwise to extend credit to or for the
direct or indirect benefit of Borrower. All undertakings, agreements,
covenants, warranties and representations of Borrower contained in the Loan
Documents shall survive any such termination, and Lender shall retain its Liens
in the Collateral and all of its rights and remedies under the Loan Documents
notwithstanding such termination, until Borrower has satisfied all of the
Obligations in the manner described in Section 5.2.2. Notwithstanding the
payment in full of the Obligations, Lender shall not be required to terminate
its security interests in the Collateral unless, with respect to any loss or
damage Lender may incur as a result of dishonored Payment Items received by
Lender from Borrower or any Account Debtor and applied to the Obligations,
Lender has either (at its option) (i) received a written agreement, executed by
Borrower and by any Person whose loans or other advances to Borrower are used in
whole or in part to satisfy the Obligations, indemnifying Lender from any such
loss or damage; or (ii) retained such monetary reserves and Liens on the
Collateral for such period of time as Lender, in its reasonable discretion, may
deem necessary to protect Lender from any such loss or damage. The provisions
of Section 4.8 hereof and all obligations of Borrower pursuant to this Agreement
to indemnify Lender shall in all events survive any termination of this
Agreement.
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<PAGE>
SECTION 6. COLLATERAL SECURITY
6.1. GRANT OF SECURITY INTEREST IN COLLATERAL. To secure the prompt
----------------------------------------
payment and performance to Lender of all of the Obligations, Borrower hereby
grants to Lender a continuing security interest in and Lien upon all of the
following Property and interests in Property of Borrower, whether now owned or
existing or hereafter created, acquired or arising and wheresoever located:
(1) All Accounts;
(2) All Inventory;
(3) All Instruments;
(4) All Chattel Paper;
(5) All Documents;
(6) All General Intangibles;
(7) All Investment Property, including Securities, whether
certificated or uncertificated (but excluding any portion thereof that
constitutes Margin Stock), and all securities entitlements;
(8) All monies now or at any time or times hereafter in the
possession or under the control of Lender or a bailee or Affiliate of
Lender;
(9) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (i) through (viii) above,
including proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral and claims against any Person for
loss of, damage to, or destruction of any of the Collateral; and
(10) All books and records (including customer lists, files,
correspondence, tapes, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (i) through (ix)
above.
6.2. LIEN PERFECTION; FURTHER ASSURANCES. Promptly after Lender's
-----------------------------------
request therefor, Borrower shall execute and deliver to Lender such instruments,
assignments or documents as are necessary under the UCC or other Applicable Law
to perfect (or continue the perfection of) Lender's Lien upon the Collateral and
shall take such other action as may be reasonably requested by Lender to give
effect to or carry out the intent and purposes of this Agreement. Unless
prohibited by Applicable Law, Borrower hereby authorizes Lender to execute and
file any such financing statement on Borrower's behalf. The parties agree that
a carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in any appropriate office
in lieu thereof.
6.3. LIEN ON DEPOSIT ACCOUNTS. As additional security for the payment
------------------------
and performance of the Obligations, Borrower grants to Lender a security
interest in and assigns to Lender all of Borrower's right, title and interest in
and to each Deposit Account of Borrower and in and to any deposits or other sums
at any time credited to each such Deposit Account, including any sums in any
blocked account or any special lockbox
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<PAGE>
account. In connection with the foregoing, Borrower hereby authorizes and
directs each bank or other depository at which a Deposit Account is maintained
to pay or deliver to Lender upon its written demand therefor made at any time
that an Event of Default exists and without further notice to Borrower (such
notice being hereby expressly waived), all balances in each Deposit Account
maintained by Borrower with such depository for application to the Obligations
then outstanding. The rights given Lender in this Section shall be cumulative
with and in addition to Lender's other rights and remedies in regard to the
foregoing Property as proceeds of Collateral. Borrower hereby irrevocably
appoints Lender as its attorney to collect any and all such balances to the
extent any such payment is not made to Lender by such bank or other depository
after demand thereon is made by Lender pursuant hereto.
SECTION 7. COLLATERAL ADMINISTRATION
7.1. GENERAL.
-------
7.1.1. Location of Collateral. All tangible items of Collateral,
----------------------
other than Inventory in transit and motor vehicles, shall at all times be kept
by Borrower and its Subsidiaries at one or more of the business locations set
forth in SCHEDULE 7.1.1 hereto and shall not be moved therefrom, without the
--------------
prior written approval of Lender, except that prior to an Event of Default and
Lender's acceleration of the maturity of the Obligations in consequence thereof,
Borrower may (i) make sales or other dispositions of any Collateral to the
extent authorized by Section 9.2.9 hereof and (ii) may move Inventory or any
record relating to any Collateral to a location in the United States other than
those shown on SCHEDULE 7.1.1 hereto so long as Borrower has given Lender at
--------------
least 30 Business Days' prior written notice of such new location and prior to
moving any Inventory to such location Borrower has executed and delivered to
Lender UCC-1 financing statements and any other appropriate documentation to
perfect or continue the perfection of Lender's Liens with respect to such
Inventory and all proceeds thereof.
7.1.2. Insurance of Collateral; Insurance and Condemnation Proceeds.
------------------------------------------------------------
(i) Borrower shall maintain and pay for insurance upon all Collateral,
wherever located, covering casualty, hazard, public liability, theft, malicious
mischief, and such other risks in such amounts and with such insurance companies
as are reasonably satisfactory to Lender. All proceeds payable under each such
policy shall be payable to Lender for application to the Obligations. Borrower
shall deliver the originals or certified copies of such policies to Lender with
satisfactory lender's loss payable endorsements reasonably satisfactory to
Lender, naming Lender as loss payee, assignee or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Lender in the event of cancellation of the policy for any reason whatsoever and
a clause specifying that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower or the owner of the Property or by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at its option, but shall not be required to, procure the same and charge
Borrower therefor. Borrower agrees to deliver to Lender, promptly as rendered,
true copies of all reports made in any reporting forms to insurance companies.
For so long as no Event of Default exists, Borrower shall have the right to
settle, adjust and compromise any claim with respect to any insurance maintained
by Borrower provided that all proceeds thereof are applied in the manner
specified in this Agreement, and Lender agrees promptly to provide any necessary
endorsement to any checks or drafts issued in payment of any such claim. At any
time that an Event of Default exists, only Lender shall be authorized to settle,
adjust and compromise such claims. Lender shall have all rights and remedies
with respect to such policies of insurance as are provided for in this Agreement
and the other Loan Documents.
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<PAGE>
7.1.3. Protection of Collateral. All expenses of protecting,
------------------------
storing, warehousing, insuring, handling, maintaining and shipping the
Collateral, all Taxes imposed by any Applicable Law on any of the Collateral or
in respect of the sale thereof, and all other payments required to be made by
Lender to any Person to realize upon any Collateral shall be borne and paid by
Borrower. If Borrower fails to promptly pay any portion thereof when due,
Lender may, at its option, but shall not be required to, pay the same and charge
Borrower therefor. Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Lender's
actual possession) or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever, but the same shall be at Borrower's sole risk.
7.1.4. Defense of Title to Collateral. Borrower shall at all times
------------------------------
defend Borrower's title to the Collateral and Lender's Liens therein against all
Persons and all claims and demands whatsoever.
7.2. ADMINISTRATION OF ACCOUNTS.
--------------------------
7.2.1. Records, Schedules and Assignments of Accounts. Borrower
----------------------------------------------
shall keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Lender on such periodic basis as Lender
shall request a sales and collections report for the preceding period, in form
satisfactory to Lender. Borrower shall also provide to Lender on or before the
20th day of each month, a detailed aged trial balance of all Accounts existing
as of the last day of the preceding month, specifying the names, addresses, face
value, dates of invoices and due dates for each Account Debtor obligated on an
Account so listed ("Schedule of Accounts") and the basis on which such Schedules
of Accounts are prepared and, upon Lender's request therefor, copies of proof of
delivery and the original copy of all documents, including repayment histories
and present status reports relating to the Accounts so scheduled and such other
matters and information relating to the status of then existing Accounts as
Lender shall reasonably request. In addition, if Accounts in an aggregate face
amount in excess of $1,500,000 cease to be Eligible Accounts in whole or in
part, Borrower shall notify Lender of such occurrence promptly (and in any event
within 2 Business Days) after Borrower's having obtained knowledge of such
occurrence and the Borrowing Base shall thereupon be adjusted to reflect such
occurrence. Upon Lender's written request, Borrower shall promptly deliver to
Lender copies of invoices or invoice registers related to all of its Accounts.
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<PAGE>
7.2.2. Borrowing Base Certificate. Borrower shall deliver to
--------------------------
Lender a current, complete and accurate Borrowing Base Certificate on or before
the 20th day of each month, or more frequently as Lender may request in writing,
together with such other documents or items as Lender may reasonably request.
7.2.3. Discounts, Allowances, Disputes. If Borrower grants any
-------------------------------
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, Borrower shall report such discounts, allowances or
credits, as the case may be, to Lender as part of the next required Schedule of
Accounts. If any amounts due and owing in excess of $50,000 are in dispute
between Borrower and any Account Debtor, Borrower shall provide Lender with
written notice thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all claims related
thereto and the amount in controversy. Upon and after the occurrence of an
Event of Default, Lender shall have the right to settle or adjust all disputes
and claims directly with the Account Debtor and to compromise the amount or
extend the time for payment of the Accounts upon such terms and conditions as
Lender may deem advisable, and to charge the deficiencies, costs and expenses
thereof, including attorneys' fees, to Borrower.
7.2.4. Taxes. If an Account includes a charge for any Taxes
-----
payable to any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of Borrower and to charge Borrower therefor if Borrower shall fail to
pay such amounts within three (3) Business Days after Lender's request to do so
; provided, however, that Lender shall not be liable for any Taxes that may be
-------- -------
due by Borrower.
7.2.5. Account Verification. Whether or not a Default or an Event
--------------------
of Default exists, any of Lender's officers, employees or agents shall have the
right, at any time or times hereafter, in the name of Lender, any designee of
Lender or Borrower, to verify the validity, amount or any other matter relating
to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall
cooperate fully with Lender in an effort to facilitate and promptly conclude any
such verification process.
7.2.6. Maintenance of Lockbox and Dominion Account. Borrower shall
-------------------------------------------
maintain a Dominion Account and a lockbox pursuant to a lockbox arrangement
("Lockbox") acceptable to Lender with such banks ("Collecting Banks") as may be
selected by Borrower and be acceptable to Lender. Borrower shall issue to each
such Collecting Bank an irrevocable letter of instruction directing such banks
to deposit all payments or other remittances received in the Lockbox to the
Concentration Account. Borrower shall enter into agreements, in form
satisfactory to Lender, with each bank at which a Dominion Account is maintained
by which such banks shall immediately transfer to Lender for application on
account of the Obligations all monies deposited to the Concentration Account.
All funds deposited in a Dominion Account or the Concentration Account shall
immediately become the property of Lender and Borrower shall obtain the
agreement by such banks in favor of Lender to waive any offset rights against
the funds so deposited. Lender assumes no responsibility for such lockbox
arrangements, including any claim of accord and satisfaction or release with
respect to deposits accepted by any bank thereunder.
7.2.7. Collection of Accounts; Proceeds of Collateral. In every
----------------------------------------------
invoice issued by Borrower commencing 30 days after the Closing Date, it shall
direct all Account Debtors to send their payments directly to the post office
box established by the Lockbox arrangement. All Payment Items received by
Borrower in respect of Accounts, together with the proceeds of any other
Collateral, shall be held as Lender's property by Borrower as trustee of an
express trust for Lender's benefit and Borrower shall immediately deposit same
in kind in a Dominion Account. Lender retains the right at all times after the
occurrence of a Default or an Event of Default to notify Account Debtors that
Accounts have been assigned
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<PAGE>
to Lender and to collect Accounts directly in its own name and to charge to
Borrower the collection costs and expenses, including attorneys' fees.
7.3. ADMINISTRATION OF INVENTORY.
---------------------------
7.3.1. Records and Reports of Inventory. Borrower shall keep
--------------------------------
accurate and complete records of its Inventory consistent with past practices
and without change in format or assumptions on which such Inventory reports are
based. Borrower shall furnish Lender Inventory reports in form and detail
satisfactory to Lender at such times as Lender may request, but at least once
each month, not later than the 20th day of such month. Borrower shall conduct a
physical inventory no less frequently than annually and shall provide to Lender
a report based on each such physical inventory promptly thereafter, together
with such supporting information as Lender shall request.
7.3.2. Returns of Inventory. Borrower shall not return any of its
--------------------
Inventory to a supplier or vendor thereof, or any other Person, whether for
cash, credit against future purchases or then existing payables, or otherwise,
unless (i) such return is in the ordinary course of business of Borrower and
such Person, (ii) no Default or Event of Default exists or would result
therefrom, (iii) the return of such Inventory will not result in an Out-of-
Formula Condition, (iv) if the aggregate Value of all Inventory returned in any
month exceeds $500,000, Borrower promptly notifies Lender thereof, and (v) any
payments received by Borrower in connection with any such return is promptly
turned over to Lender for application to the Obligations.
7.4. PAYMENT OF CHARGES. All amounts chargeable to Borrower under this
------------------
Section 7 shall be Obligations secured by all of the Collateral and shall be
payable on demand.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. General Representations and Warranties. To induce Lender to enter
--------------------------------------
into this Agreement and to make advances hereunder, Borrower warrants and
represents to Lender and covenants with Lender that:
8.1.1. Organization and Qualification. Each of Borrower and its
------------------------------
Subsidiaries is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Each of Borrower and
its Subsidiaries is duly qualified and is authorized to do business and is in
good standing as a foreign limited liability company or corporation in each
state or jurisdiction listed on SCHEDULE 8.1.1 hereto and in all other states
--------------
and jurisdictions where the character of its Properties or the nature of its
activities make such qualification necessary.
8.1.2. Corporate Power and Authority. Each of Borrower and its
-----------------------------
Subsidiaries is duly authorized and empowered to enter into, execute, deliver
and perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of
the other Loan Documents have been duly authorized by all necessary action and
do not and will not (i) require any consent or approval of any of the holders of
the Equity Interests of Borrower or any of its Subsidiaries; (ii) contravene
Borrower's or any of its Subsidiaries' Organization Documents; (iii) violate, or
cause Borrower or any of its Subsidiaries to be in default under, any provision
of any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award in effect having applicability to Borrower or any of its
Subsidiaries; (iv) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower or any of its Subsidiaries is a party or by which
it or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition
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<PAGE>
of any Lien (other than Permitted Liens) upon or with respect to any of the
Properties now owned or hereafter acquired by Borrower or any of its
Subsidiaries.
8.1.3. Legally Enforceable Agreement. This Agreement is, and each
-----------------------------
of the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of each of Borrower and its Subsidiaries
enforceable against it in accordance with its respective terms.
8.1.4. Capital Structure. As of the date hereof, SCHEDULE 8.1.4
----------------- --------------
hereto states (i) the correct name of each of the Subsidiaries of Borrower, its
jurisdiction of organization and the percentage of its Equity Interests having
voting powers owned by Borrower, and (ii) the name of each of Borrower's
corporate or joint venture Affiliates and the nature of the affiliation.
Borrower has good title to all of the shares it purports to own of the Equity
Interests of each of its Subsidiaries, free and clear in each case of any Lien
other than Permitted Liens. All such Equity Interests have been duly issued and
are fully paid and non-assessable.
8.1.5. Corporate Names. Neither Borrower nor any of its
---------------
Subsidiaries has been known as or used any corporate, fictitious or trade names
except those listed on SCHEDULE 8.1.5 hereto. Except as set forth on SCHEDULE
-------------- --------
8.1.5, neither Borrower nor any of its Subsidiaries has been the surviving
- -----
corporation of a merger or consolidation or acquired all or substantially all of
the assets of any Person.
8.1.6. Business Locations; Agent for Process. Each of Borrower's
-------------------------------------
and its Subsidiaries' chief executive office and other places of business are as
listed on SCHEDULE 7.1.1 hereto. During the preceding five-year period, neither
--------------
Borrower nor any of its Subsidiaries has had an office, place of business or
agent for service of process other than as listed on SCHEDULE 7.1.1. Except as
--------------
shown on SCHEDULE 7.1.1, no Inventory is stored with a bailee, warehouseman or
--------------
similar Person, nor is any Inventory consigned to any Person.
8.1.7. Title to Properties; Priority of Liens. Each of Borrower
--------------------------------------
and its Subsidiaries has good, indefeasible and marketable title to and fee
simple ownership of, or valid and subsisting leasehold interests in, all of its
real Property, and good title to all of the Collateral and all of its other
Property, in each case free and clear of all Liens except Permitted Liens.
Borrower has paid or discharged all lawful claims which, if unpaid, might become
a Lien against any of Borrower's Properties that is not a Permitted Lien. The
Liens granted to Lender under Section 6 hereof are first priority Liens, subject
only to those Permitted Liens which are expressly stated to have priority over
the Liens of Lender.
8.1.8. Accounts. Lender may rely, in determining which Accounts
--------
are Eligible Accounts, on all statements and representations made by Borrower
with respect to any Account. Unless otherwise indicated in writing to Lender,
with respect to each Account:
(1) It is genuine and in all respects what it purports to be, and
it is not evidenced by a judgment;
(2) It arises out of a completed, bona fide sale and delivery of
---- ----
goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part of
the contract between Borrower and the Account Debtor;
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(3) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy of
which has been furnished or is available to Lender;
(4) Borrower has made no agreement with any Account Debtor for
any extension, compromise, settlement or modification of any such Account
or any deduction therefrom, except discounts or allowances which are
granted by Borrower in the ordinary course of its business for prompt
payment and which are reflected in the calculation of the net amount of
each respective invoice related thereto and are reflected in the Schedules
of Accounts submitted to Lender pursuant to Section 7.2.1 hereof;
(5) There are no facts, events or occurrences which in any way
impair the validity or enforceability of any Accounts or tend to reduce the
amount payable thereunder from the face amount of the invoice and
statements delivered to Lender with respect thereto;
(6) To the best of Borrower's knowledge, the Account Debtor
thereunder (1) had the capacity to contract at the time any contract or
other document giving rise to the Account was executed and (2) such Account
Debtor is Solvent;
(7) To the best of Borrower's knowledge, there are no proceedings
or actions which are threatened or pending against any Account Debtor which
might result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account;
(8) There are no restrictions on Borrower's right to assign to
Lender the right to payment represented by the Account or any Lien upon the
Account.
8.1.9. Financial Statements; Fiscal Year. The Consolidated and
---------------------------------
consolidating balance sheets of Parent and such other Persons described therein
(including the accounts of all Subsidiaries of Borrower for the respective
periods during which a Subsidiary relationship existed) as of May 31, 1998, and
the related statements of income, changes in stockholder's equity, and changes
in financial position for the periods ended on such dates, have been prepared in
accordance with GAAP, and present fairly, in all material respects, the
financial positions of Parent, Borrower and such Persons at such dates and the
results of Borrower's operations for such periods. Since May 31, 1998, there
has been no material change in the condition, financial or otherwise, of Parent,
Borrower and such other Persons as shown on the Consolidated balance sheet as of
such date, except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse.
8.1.10. Full Disclosure. The financial statements referred to in
---------------
Section 8.1.9 hereof do not, nor does this Agreement or any other written
statement of Borrower to Lender, contain any untrue statement of a fact or omit
a fact necessary to make the statements contained therein or herein not
misleading in any material respect. There is no fact or circumstances which
Borrower has failed to disclose to Lender in writing and which may reasonably be
expected to have a Material Adverse Effect.
8.1.11. Solvent Financial Condition. Each of Borrower and its
---------------------------
Subsidiaries is now and, after giving effect to the Loans to be made hereunder,
at all times will be, Solvent.
8.1.12. Surety Obligations. Neither Borrower nor any of its
------------------
Subsidiaries is obligated as surety or indemnitor under any surety or similar
bond or other contract issued or entered into any agreement
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to assure payment, performance or completion of performance of any undertaking
or obligation of any Person except in connection with the GECC Documents.
8.1.13. Taxes. Borrower's federal tax identification number is 62-
-----
1694320. The federal tax identification number of each of Borrower's
Subsidiaries is shown on SCHEDULE 8.1.13 hereto. Borrower and each of its
---------------
Subsidiaries has filed all federal, state and local tax returns and other
reports it is required by law to file and has paid, or made provision for the
payment of, all Taxes upon it, its income and Properties as and when such Taxes
are due and payable, except to the extent being Properly Contested. The
provision for Taxes on the books of Borrower and its Subsidiaries are adequate
for all years not closed by applicable statutes, and for its current fiscal
year.
8.1.14. Brokers. There are no claims for brokerage commissions,
-------
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement.
8.1.15. Patents, Trademarks, Copyrights and Licenses. Borrower and its
--------------------------------------------
Subsidiaries each owns or possesses all Intellectual Property necessary for the
present and planned future conduct of its business without any conflict with the
rights of others; there is no objection to or pending Intellectual Property
Claim with respect to any Borrower's right to use any such Intellectual Property
and Borrower is not aware of any grounds for challenge or objection thereto;
and, except as may be disclosed on SCHEDULE 8.1.15, Borrower pays no royalty or
---------------
other compensation to any Person for the right to use any Intellectual Property.
All such patents, trademarks, service marks, tradenames, copyrights, licenses
and other similar rights are listed on SCHEDULE 8.1.15 hereto.
---------------
8.1.16. Governmental Approvals. Each of Borrower and its Subsidiaries
----------------------
has, and is in good standing with respect to, all Governmental Approvals
necessary to continue to conduct its business as heretofore or proposed to be
conducted by it and to own or lease and operate its Properties as now owned or
leased by it.
8.1.17. Compliance with Laws. Each of Borrower and its Subsidiaries
--------------------
has duly complied with, and its Properties, business operations and leaseholds
are in compliance in all material respects with, the provisions of all
Applicable Law (except to the extent that any such noncompliance with Applicable
Law would not reasonably be expected to have a Material Adverse Effect) and
there have been no citations, notices or orders of noncompliance issued to
Borrower or any of the Subsidiaries under any such law, rule or regulation. No
Inventory has been produced in violation of the Fair Labor Standards Act (29
U.S.C. (S) 201 et seq.). With respect to matters arising under any
-- ---
Environmental Laws, the representations and warranties contained in the
Environmental Certificate are true and correct on the date hereof.
8.1.18. Restrictions. Neither Borrower nor any of its Subsidiaries
------------
is a party or subject to any contract, agreement, or charter or other corporate
restriction, which has or could be reasonably expected to have a Material
Adverse Effect. Neither Borrower nor any of its Subsidiaries is a party or
subject to any contract or agreement which restricts its right or ability to
incur Debt, other than as set forth on SCHEDULE 8.1.18 hereto, none of which
---------------
prohibit the execution of or compliance with this Agreement or the other Loan
Documents by Borrower or any of its Subsidiaries, as applicable.
8.1.19 Litigation. Except as set forth on SCHEDULE 8.1.19 hereto,
---------- ---------------
there are no actions, suits, proceedings or investigations pending, or to the
knowledge of Borrower, threatened, against or affecting Borrower or any of its
Subsidiaries, or the business, operations, Properties, prospects, profits or
condition of Borrower or any of its Subsidiaries, none of which if resolved
adversely to Borrower or its
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<PAGE>
Subsidiaries would have Material Adverse Effect. Neither Borrower nor any of its
Subsidiaries is in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
8.1.20. No Defaults. No event has occurred and no condition exists
-----------
which would, upon or after the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of Default.
Neither Borrower nor any of its Subsidiaries is in default, and no event has
occurred and no condition exists which constitutes or which with the passage of
time or the giving of notice or both would constitute a default, under any
Material Contract or in the payment of any Debt to any Person for Money
Borrowed.
8.1.21. Leases. SCHEDULE 8.1.21 hereto is a complete listing of all
------ ---------------
capitalized and operating leases of Borrower and its Subsidiaries on the date
hereof. Each of Borrower and its Subsidiaries is in full compliance with all of
the terms of each of its respective capitalized and operating leases.
8.1.22. Pension Plans. Except as disclosed on SCHEDULE 8.1.22 hereto,
------------- ---------------
neither Borrower nor any of its Subsidiaries has any Plan on the date hereof.
Borrower and each of its Subsidiaries is in full compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect to
each Plan. No fact or situation that could result in a material adverse change
in the financial condition of Borrower or any of its Subsidiaries exists in
connection with any Plan. Neither Borrower nor any of its Subsidiaries has any
withdrawal liability in connection with a Multiemployer Plan.
8.1.23. Trade Relations. There exists no actual or threatened
---------------
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower or any of its Subsidiaries and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower or any of its Subsidiaries,
or with any material supplier, and there exists no condition or state of facts
or circumstances which would materially affect adversely Borrower or any of its
Subsidiaries or prevent Borrower or any of its Subsidiaries from conducting such
business after the consummation of the transactions contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
8.1.24. Labor Relations. Except as described on SCHEDULE 8.1.24
--------------- ---------------
hereto, neither Borrower nor any of its Subsidiaries is a party to any
collective bargaining agreement on the date hereof. On the date hereof, there
are no material grievances, disputes or controversies with any union or any
other organization of Borrower's or any of its Subsidiaries' employees, or
threats of strikes, work stoppages or any asserted pending demands for
collective bargaining by any union or organization.
8.1.25. Investment Company Act; Public Utility Holding Company Act.
----------------------------------------------------------
No Obligor is an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning
of the Investment Company Act of 1940, or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935.
8.1.26. Margin Stock. Neither Borrower nor any of the Subsidiaries is
------------
engaged, principally or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
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8.2. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each
-----------------------------------------------
representation and warranty contained in this Agreement and the other Loan
Documents shall be deemed to be reaffirmed by Borrower on each date that
Borrower requests an extension of credit under this Agreement, except for
changes in the nature of Borrower's or, if applicable, any of its Subsidiaries'
business or operations that may occur after the date hereof in the ordinary
course of business so long as Lender has consented to such changes or such
changes are not violative of any provision of this Agreement. Notwithstanding
the foregoing, representations and warranties which by their terms are
applicable only to a specific date shall be deemed made only at and as of such
date.
8.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
------------------------------------------
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. AFFIRMATIVE COVENANTS. During the term of this Agreement, and
---------------------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall and
shall cause each Subsidiary to:
9.1.1. Visits and Inspections. Permit representatives of Lender,
----------------------
from time to time, as often as may be reasonably requested, but only during
normal business hours, to visit and inspect the Properties of Borrower and each
of its Subsidiaries, inspect, audit and make extracts from Borrower's and each
Subsidiary's books and records, and discuss with Borrower's officers, employees
and independent accountant, Borrower's and each Subsidiary's business, assets,
liabilities, financial condition, business prospects and results of operations.
9.1.2. Notices. Notify Lender in writing promptly after Borrower's
-------
obtaining knowledge thereof (i) of the occurrence of any event or the existence
of any fact which renders any representation or warranty in this Agreement or
any of the other Loan Documents inaccurate, incomplete or misleading; (ii) of
the commencement of any litigation affecting Borrower or any of its Properties
or the institution of any administrative proceeding which, if determined
adversely to Borrower, would have a Material Adverse Effect; (iii) at least 60
days prior thereto, of Borrower's opening of any new office or place of business
or Borrower's closing of any existing office or place of business; (iv) of any
labor dispute to which Borrower may become a party, any strikes or walkouts
relating to any of its plants or other facilities, and the expiration of any
labor contract to which it is a party or by which it is bound; (v) of any
material default by any Obligor under or termination of any Material Contract or
any note, indenture, loan agreement, mortgage, lease, deed, guaranty or other
similar agreement relating to any Debt of Borrower exceeding $250,000; (vi) of
the existence of any Default or Event of Default; (vii) of any default by any
Person under any note or other evidence of Debt payable to Borrower; (viii) of
any judgment rendered against any Obligor in an amount exceeding $250,000.
9.1.3. Financial Statements. Keep adequate records and books of
--------------------
account with respect to its business activities in which proper entries are made
in accordance with GAAP reflecting all its financial transactions; and cause to
be prepared and furnished to Lender the following (all to be prepared in
accordance with GAAP applied on a consistent basis, unless Borrower's certified
public accountants concur in any change therein and such change is disclosed to
Lender and is consistent with GAAP):
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<PAGE>
(1) not later than 120 days after the close of each Fiscal Year
of Borrower, unqualified audited financial statements of Borrower and its
Subsidiaries as of the end of such year, on a Consolidated and
consolidating basis, certified by a firm of independent certified public
accountants of recognized standing selected by Borrower but acceptable to
Lender (except for a qualification for a change in accounting principles
with which the accountant concurs);
(2) not later than 30 days after the end of each month hereafter,
including the last month of Borrower's Fiscal Year, unaudited interim
financial statements of Borrower and its Subsidiaries as of the end of such
month and of the portion of Borrower's Fiscal Year then elapsed, on a
Consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly
presenting the Consolidated financial position and results of operations of
Borrower and its Subsidiaries for such month and period subject only to
changes from audit and year-end adjustments and except that such statements
need not contain notes;
(3) promptly after the sending or filing thereof, as the case may
be, copies of any proxy statements, financial statements or reports which
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange;
(4) promptly after the filing thereof, copies of any annual
report to be filed in accordance with ERISA in connection with each Plan;
and
(5) such other data and information (financial and otherwise) as
Lender, from time to time, may reasonably request, bearing upon or related
to the Collateral or Borrower's and each of its Subsidiaries' financial
condition or results of operations.
Concurrently with the delivery of the financial statements described
in clause (i) of this Section 9.1.3, Borrower shall forward to Lender a copy of
the accountants' letter to Borrower's management that is prepared in connection
with such financial statements and also shall cause to be prepared and shall
furnish to Lender a certificate of the aforesaid certified public accountants
certifying to Lender that, based upon their examination of the financial
statements of Borrower and its Subsidiaries performed in connection with their
examination of said financial statements, they are not aware of any Default or
Event of Default, or, if they are aware of such Default or Event of Default,
specifying the nature thereof, and acknowledging, in a manner satisfactory to
Lender, that they are aware that Lender is relying on such financial statements
in making its decisions with respect to the Loans. Concurrently with the
delivery of the financial statements described in clause (i) of this Section
and concurrently with the delivery of the monthly financial statement described
in clause(ii) of this Section ending a Fiscal Quarter, or more frequently if
requested by Lender, Borrower shall cause to be prepared and furnished to Lender
a Compliance Certificate executed by the chief financial officer of Borrower.
9.1.4. Landlord and Storage Agreements. Provide Lender with copies
-------------------------------
of all agreements between Borrower or any of its Subsidiaries and any landlord
or warehouseman which owns any premises at which any Inventory may, from time to
time, be kept.
9.1.5. Projections. No later than 30 days prior to the end of each
-----------
Fiscal Year of Borrower, deliver to Lender Projections of Borrower for the
forthcoming 3 years, year by year, and for the forthcoming Fiscal Year, quarter
by quarter.
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<PAGE>
9.1.6. Taxes. Pay and discharge all Taxes prior to the date on
-----
which such Taxes become delinquent or penalties attach thereto, except and to
the extent only that such Taxes are being Properly Contested.
9.1.7. Compliance with Laws. Comply with all Applicable Law,
--------------------
including all laws, statutes, regulations and ordinances regarding the
collection, payment and deposit of Taxes, and all ERISA and Environmental Laws,
and obtain and keep in force any and all Governmental Approvals necessary to the
ownership of its Properties or to the conduct of its business, which violation
or failure to obtain might have a Material Adverse Effect. Without limiting the
generality of the foregoing, if any Environmental Release shall occur at or on
any of the Properties of Borrower or any Subsidiary, Borrower shall, or shall
cause the applicable Subsidiary to, act immediately to investigate the extent
of, and to make appropriate remedial action to eliminate, such Environmental
Release, whether or not ordered or otherwise directed to do so by any
governmental authority.
9.1.8. Insurance. In addition to the insurance required herein with
---------
respect to the Collateral, maintain with financially sound and reputable
insurers, insurance with respect to its Properties and business against such
casualties and contingencies of such type (including product liability, business
interruption, larceny, embezzlement, or other criminal misappropriation
insurance) and in such amounts as is customary in the business of Borrower or as
otherwise reasonably required by Lender.
9.1.9. Year 2000 Compatibility. Take all action necessary to assure
-----------------------
that Borrower's computer based systems are able to operate and effectively
process data including dates on and after January 1, 2000. Borrower shall
provide Lender written assurance reasonably acceptable to Lender that such
systems are Year 2000 compliant on or before September 30, 1999. Borrowers
shall (i) promptly and in no event later than September 30, 1999, take all
action necessary to ensure that all computer based systems of Borrower and its
Subsidiaries are capable of the following: (a) handling date information
involving all and any dates before, during and/or after January 1, 2000,
including accepting input, providing output and performing date calculations in
whole or in part; (b) operating, accurately without interruption on and in
respect of any and all dates before, during and/or after January 1, 2000, and
without any change in performance; (c) responding to and processing two digit
year input without creating any ambiguity as to the century; (d) storing and
providing date input information without creating any ambiguity as to the
century; and (ii) promptly and in no event later than September 30, 1999, take
all action necessary to ensure that all computer based systems of each of their
vendors, suppliers and customers are capable of (a) through (d) above, where
noncompliance could have a Material Adverse Effect.
9.2. NEGATIVE COVENANTS. During the term of this Agreement, and
------------------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it shall
not and shall not permit any Subsidiary to:
9.2.1. Fundamental Changes. Enter into any transaction to merge,
-------------------
reorganize, consolidate or amalgamate with any Person, or liquidate, wind up or
dissolve itself, except for mergers or consolidations of any Subsidiary with
another Subsidiary, GECC Eligible Acquisitions and Eligible Acquisitions
hereunder.
9.2.2. Loans. Make any loans or other advances of money to any
-----
Person other than (i) to an officer or employee of Borrower or a Subsidiary for
salary, travel advances, advances against commissions and other similar advances
in the ordinary course of business plus other loans up to an aggregate
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<PAGE>
amount outstanding at any time not to exceed $250,000, or (ii) so long as no
Event of Default or Out-of-Formula Condition shall exist or be caused thereby,
(a) make advances to Harperprints from time to time for Harperprints' working
capital needs up to an aggregate amount outstanding at any time not to exceed
$1,000,000, such advances to be evidenced by one or more promissory notes
executed by Harperprints in favor of Borrower and the original of each such note
delivered to Lender, and (b) advances to Parent in connection with Eligible
Acquisitions or GECC Eligible Acquisitions to enable Parent to pay a portion of
the amount due to the applicable sellers, such loans to be evidenced by one or
more promissory note executed by Parent in favor of Borrower and the original of
each such note evidencing advances to Parent utilizing the proceeds of an
Acquisition Loan hereunder delivered to Lender.
9.2.3. Total Debt. Create, incur, assume, or suffer to exist any
----------
Debt, except: (1) the Obligations; (2) Subordinated Debt existing on the
Closing Date; (3) Debt of any Subsidiary of Borrower to Borrower; (4) accounts
payable to trade creditors and current operating expenses (other than for Money
Borrowed) which are not aged more than 120 days from billing date or more than
30 days from the due date, in each case incurred in the ordinary course of
business and paid within such time period, unless the same are being Properly
Contested; (5) obligations to pay rent in connection with Borrower's business
operations; (6) Purchase Money Debt incurred for Capital Expenditures made in
conformity with this Agreement; (7) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business; (8) Debt owing under the GECC
Documents; (ix) Deferred Acquisition Consideration; (x) Subordinated Debt; (xi)
Debt described in SCHEDULE 9.2.3 attached hereto; and (xii) Debt not included
---------------
in paragraphs (i) through (xi) above which does not exceed at any time, in the
aggregate, the sum of $250,000.
9.2.4. Affiliate Transactions. Enter into, or be a party to any
----------------------
transaction with any Affiliate or stockholder, except: (i) the transactions
contemplated by the Loan Documents, including, loans to Harperprints permitted
under Section 9.2.2 ; (ii) payment of customary directors' fees and indemnities;
(iii) transactions with Affiliates that were consummated prior to the date
hereof and have been disclosed to Lender prior to the Closing Date; (iv) in the
ordinary course of and pursuant to the reasonable requirements of Borrower's or
such Subsidiary's business and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to Borrower or such Subsidiary
than would obtain in a comparable arm's length transaction with a Person not an
Affiliate or stockholder of Borrower or such Subsidiary.
9.2.5. Limitation on Liens. Create or suffer to exist any Lien
-------------------
upon any of its Property, income or profits, whether now owned or hereafter
acquired, except:
(1) Liens at any time granted in favor of Lender;
(2) Liens for Taxes (excluding any Lien imposed pursuant to any
of the provisions of ERISA) incurred in the ordinary course of Borrower's
business and not yet due or being Properly Contested;
(3) Liens arising in the ordinary course of Borrower's business
by operation of law or regulation, but only if payment in respect of any
such Lien is not at the time required or the Debt secured by any such Lien
is being Properly Contested and such Liens do not materially detract from
the value of the Property of Borrower or materially impair the use thereof
in the operation of Borrower's business;
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<PAGE>
(4) Purchase Money Liens securing Purchase Money Debt;
(5) Liens securing Debt of a Subsidiary to Borrower or another
such Subsidiary;
(6) Liens arising by virtue of the rendition, entry or issuance
against Borrower or any Subsidiary, or any Property of Borrower or any
Subsidiary, of any judgment, writ, order, or decree for so long as each
such Lien is (a) either in existence for less than 20 consecutive days
after it first arises or is being Properly Contested and (b) is at all
times junior in priority to the Liens in favor of Lender;
(7) Liens incurred or deposits made in the ordinary course of
business to secure the performance of tenders, bids, leases, contracts
(other than for the repayment of Money Borrowed), statutory obligations and
other similar obligations or arising as a result of progress payments under
government contracts, provided that, to the extent any such Liens attach to
any of the Collateral, such Liens are at all times subordinate and junior
to the Liens upon the Collateral in favor of Lender;
(8) easements, rights-of-way, restrictions, covenants or other
agreements of record and other similar charges or encumbrances on real
Property of Borrower or a Subsidiary that do not interfere with the
ordinary conduct of the business of Borrower or such Subsidiary;
(9) Liens in existence immediately prior to the Closing Date that
are satisfied in full and released on the Closing Date as a result of the
application of Borrower's cash on hand at the Closing Date or the proceeds
of the Loans to be made on the Closing Date;
(10) such other Liens as appear on SCHEDULE 9.2.5 hereto; and
--------------
(11) such other Liens as Lender may hereafter approve in writing.
9.2.6. Subordinated Debt. Make any payment of all or any part of
-----------------
any Subordinated Debt or take any other action or omit to take any other action
in respect of any Subordinated Debt, except in accordance with the Subordination
Agreement relative thereto.
9.2.7. Distributions. Declare or make any Distributions.
-------------
9.2.8. Capital Expenditures. Make Capital Expenditures (including
--------------------
expenditures by way of capitalized leases) which, in the aggregate, as to
Borrower, Harperprints and their respective Subsidiaries, exceed (i) $3,000,000
during the period from the date of this Agreement through December 31, 1998;
(ii) $4,000,000 during Borrower's 1999 Fiscal Year; (iii) $5,000,000 during
Borrower's 2000 Fiscal Year; (iv) $6,000,000 during Borrower's 2001 Fiscal Year
or during any Fiscal Year thereafter.
9.2.9. Disposition of Assets. Sell, lease or otherwise dispose of
---------------------
any of its Properties, including any disposition of Property as part of a sale
and leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of business for so long as no Event of Default
exists hereunder, (ii) a transfer of Property to Borrower by a Subsidiary of
Borrower, and (iii) other dispositions expressly authorized by other provisions
of the Loan Documents.
9.2.10. Equity Interests of Subsidiaries. Permit any of its
--------------------------------
Subsidiaries to issue any additional Equity Interests except director's
qualifying shares.
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<PAGE>
9.2.11. Bill-and-Hold Sales, Etc. Make a sale to any customer on a
------------------------
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
9.2.12. Restricted Investment. Make or have any Restricted
---------------------
Investment.
9.2.13. Tax Consolidation. File or consent to the filing of any
-----------------
consolidated income tax return with any Person other than Parent or a Subsidiary
of Parent.
9.2.14. Fiscal Year. Establish a fiscal year different from the
-----------
Fiscal Year.
9.2.15. Organization Documents. Amend, modify or otherwise change any
----------------------
of the terms or provisions and any of its Organization Documents as in effect on
date hereof, except for changes that do not affect in any way Borrower's or such
Subsidiary's rights and obligations to enter into and to perform the Loan
Documents to which it is a party and to pay all of the Obligations and that do
not otherwise have a Material Adverse Effect.
9.3. SPECIFIC FINANCIAL COVENANTS. During the term of this Agreement,
----------------------------
and thereafter for so long as there are any Obligations outstanding, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall
not:
9.3.1. EBITDA. Permit the EBITDA of Parent, determined on a
------
Consolidated basis, as of the last day of each Fiscal Quarter set forth below
for the Fiscal Year to date to be less than the corresponding amount set forth
below:
Date Amount
---- ------
March 31, 1998 $ 3,000,000
June 30, 1998 $ 8,200,000
September 30, 1998 $12,400,000
December 31, 1998 $16,000,000
9.3.2. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
---------------------------
Ratio of Parent, determined on a Consolidated basis, as of the last day of each
Fiscal Quarter set forth below for the 4 Fiscal Quarters then ending to be less
than the corresponding ratio set forth below:
Fiscal Quarter Ending Ratio
--------------------- -----
December 31, 1998 1.10:1.0
March 31, 1999 1.10:1.0
June 30, 1999 1.10:1.0
September 30, 1999 1.10:1.0
December 31, 1999 1.10:1.0
March 31, 2000 1.10:1.0
June 30, 2000 1.10:1.0
September 30, 2000 1.10:1.0
December 31, 2000 1.15:1.0
March 31, 2001 1.15:1.0
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June 30, 2001 1.15:1.0
September 30, 2001 1.15:1.0
December 31, 2001 1.20:1.0
March 31, 2002 1.20:1.0
June 30, 2002 1.20:1.0
September 30, 2002 1.20:1.0
December 31, 2002 1.20:1.0
9.3.3. Leverage Ratio. Permit the Leverage Ratio of Parent, determined
--------------
on a Consolidated basis, as of the last day of each Fiscal Quarter set forth
below for the 4 Fiscal Quarters then ending to be more than the corresponding
ratio set forth below:
Fiscal Quarter Ending Ratio
--------------------- -----
June 30, 1998 5.00:1.0
September 30, 1998 5.00:1.0
December 31, 1998 5.00:1.0
March 31, 1999 4.75:1.0
June 30, 1999 4.75:1.0
September 30, 1999 4.75:1.0
December 31, 1999 4.25:1.0
March 31, 2000 4.25:1.0
June 30, 2000 4.25:1.0
September 30, 2000 4.25:1.0
December 31, 2000 3.75:1.0
March 31, 2001 3.75:1.0
June 30, 2001 3.75:1.0
September 30, 2001 3.75:1.0
December 31, 2001 3.50:1.0
March 31, 2002 3.50:1.0
June 30, 2002 3.50:1.0
September 30, 2002 3.50:1.0
December 31, 2002 3.50:1.0
SECTION 10. CONDITIONS PRECEDENT
10.1. Conditions Precedent to Initial Loans. Notwithstanding any other
-------------------------------------
provision of this Agreement or any of the other Loan Documents, and without
affecting in any manner the rights of Lender under the other sections of this
Agreement, Lender shall not be required to fund any Loan requested by Borrower
unless, on or before August 30, 1998, each of the following conditions has been
and continues to be satisfied:
10.1.1. Documentation. Lender shall have received, in form and
-------------
substance satisfactory to Lender and its counsel, a duly executed counterpart of
this Agreement and the other Loan Documents, together with such additional
documents, instruments and certificates as Lender and its counsel shall require
in connection therewith from time to time, all in form and substance
satisfactory to Lender and its counsel.
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10.1.2. Evidence of Perfection and Priority of Liens in Collateral.
----------------------------------------------------------
Lender shall have received copies of all filing receipts or acknowledgments
issued by any governmental authority to evidence any filing or recordation
necessary to perfect the Liens of Lender in the Collateral and evidence in form
satisfactory to Lender that such Liens constitute valid and perfected Liens, and
that there are no other Liens upon any Collateral except for Permitted Liens.
10.1.3. Organization Documents. Lender shall have received a copy
----------------------
of the Organization Documents of Borrower, and all amendments thereto, certified
by the Secretary of State or other appropriate official of the jurisdiction of
Borrower's formation.
10.1.4. Good Standing Certificates. Lender shall have received good
--------------------------
standing certificates for Borrower, issued by the Secretary of State or other
appropriate official of Borrower's jurisdiction of organization and each
jurisdiction where the conduct of Borrower's business activities or ownership of
its Property necessitates qualification.
10.1.5. Opinion Letters. Lender shall have received a favorable,
---------------
written opinion of Baker, Donelson, Bearman & Caldwell, counsel to Borrower, as
to the transactions contemplated by this Agreement and the matters set forth in
EXHIBIT F attached hereto.
- ---------
10.1.6. Insurance. Lender shall have received copies of the
---------
casualty insurance policies of Borrower, together with loss payable endorsements
on Lender's standard form of loss payee endorsement naming Lender as loss payee
and copies of Borrower's liability insurance policies, including product
liability policies, together with endorsements naming Lender as a co-insured.
10.1.7. Disbursement Letter. Lender shall have received written
-------------------
instructions from Borrower directing application of proceeds of the initial
Loans made pursuant to this Agreement, and an initial Borrowing Base Certificate
from Borrower, in form satisfactory to Lender.
10.1.8. Dominion Account. Lender shall have received the duly
----------------
executed agreement establishing the Dominion Account with a financial
institution acceptable to Lender for the collection or servicing of the
Accounts.
10.1.9. Landlord Agreements. Lender shall have received all landlord
-------------------
or warehouseman agreements with respect to all premises leased by Borrower and
which are disclosed on Schedule 7.1.1 hereto.
--------------
10.1.10. License Agreements. Lender shall have received, reviewed and
------------------
found satisfactory in all respects all licenses and other agreements pursuant to
which Borrower manufacturers, markets, distributes or sells any of its
Inventory.
10.1.11. Disbursement Letter; Borrowing Base Certificate. Lender
-----------------------------------------------
shall have received written instructions from Borrower directing application of
the proceeds of the Loans made pursuant to this Agreement, and an initial
Borrowing Base Certificate from Borrower, in form satisfactory to Lender.
10.2. CONDITIONS PRECEDENT TO EXECUTION OF LC APPLICATION.
---------------------------------------------------
Notwithstanding any other provision of this Agreement or any of the other Loan
Documents, and without affecting in any manner the rights of Lender under other
sections of this Agreement, Lender shall not be required to execute any LC
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Application requested by Borrower, unless and until each of the following
conditions has been and continues to be satisfied:
10.2.1. Letter of Credit Documentation. Bank shall have received,
------------------------------
in form and substance satisfactory to Bank and its counsel, duly executed LC
Documents with respect to the Letters of Credit requested to be issued by Bank
and an LC Guaranty with respect to each such Letter of Credit.
10.2.2. LC Request. Lender shall have received an LC Request from a
----------
Borrower.
10.2.3. LC Conditions. Each of the LC Conditions shall have been
-------------
satisfied.
10.2.4. Satisfaction of Other Conditions. Each of the conditions
--------------------------------
set forth in Section 10.1 hereof shall have been satisfied.
10.3. CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Notwithstanding any
---------------------------------------------
other provision of this Agreement or any of the other Loan Documents, and
without affecting in any manner the rights of Lender under the other sections of
this Agreement, Lender shall not be required to make any Loan or otherwise
extend any credit or other financial accommodations to or for the benefit of
Borrower, unless and until each of the following conditions has been and
continues to be satisfied:
10.3.1. No Default. No Default or Event of Default exists at the
----------
time of, or would result from, the funding of such Loan or other extension of
credit.
10.3.2. No Litigation. No action, proceeding, investigation,
-------------
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of any of the Loan Documents or the consummation of the transactions
contemplated hereby or thereby.
10.3.3. No Material Adverse Effect. No event shall have occurred
--------------------------
and no condition shall exist which has or may be reasonably likely to have a
Material Adverse Effect.
10.3.4. Current Borrowing Base Certificate. Lender shall have
----------------------------------
timely received a Borrowing Base Certificate in compliance with the provisions
of Section 7.2.2.
10.4. LIMITED WAIVER OF CONDITIONS PRECEDENT. If Lender shall make any
--------------------------------------
Loans or otherwise extend any credit to Borrower under this Agreement at a time
when any of the foregoing conditions precedent are not satisfied (regardless of
whether the failure of satisfaction of any such conditions precedent was known
or unknown to Lender), the funding of such Loans or the extension of such credit
shall not operate as a waiver of the right of Lender to insist upon the
satisfaction of all conditions precedent with respect to each subsequent
borrowing requested by Borrower or a waiver of any Default or Event of Default
as a consequence of the failure of any such conditions to be satisfied, unless
Lender, in writing waives the satisfaction of any condition precedent in which
event such waiver shall only be applicable for the specific instance given and
only to the extent and for the period of time expressly stated in such written
waiver.
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SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
-----------------
following events or conditions shall constitute an "Event of Default":
11.1.1. Payment of Obligations. Borrower shall fail to pay on the due
----------------------
date thereof any of the Revolver Loans or any other Obligations (whether due at
stated maturity, on demand, upon acceleration or otherwise).
11.1.2. Misrepresentations. Any representation, warranty or other
------------------
statement made or furnished to Lender by or on behalf of Borrower, any
Subsidiary of Borrower or Guarantor in this Agreement, any of the other Loan
Documents or any instrument, certificate or financial statement furnished in
compliance with or in reference thereto proves to have been false or misleading
in any material respect when made or furnished or when reaffirmed pursuant to
Section 8.2 hereof.
11.1.3. Breach of Specific Covenants. Borrower shall fail or
----------------------------
neglect to perform, keep or observe any covenant contained in Sections 6.2, 6.3,
7.1.1, 9.1.1, 9.2 or 9.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
11.1.4. Breach of Other Covenants. (i) Borrower shall fail or
-------------------------
neglect to perform, keep or observe any covenant contained in Section 7.2 or
9.1.3 and the breach of such covenant is not cured to Lender's satisfaction
within 5 days after the sooner to occur of Borrower's receipt of notice of such
breach from Lender or the date on which such failure or neglect first becomes
known to any officer of Borrower or (ii) Borrower shall fail or neglect to
perform, keep or observe any other covenant contained in this Agreement (other
than a covenant which is dealt with specifically elsewhere in Section 11.1
hereof) and the breach of such other covenant is not cured to Lender's
satisfaction within 30 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such failure or neglect
first becomes known to any officer of Borrower; provided, however, that any such
-------- -------
notice and opportunity to cure under this clause (ii) shall not apply in the
case of any failure to perform, keep or observe any covenant which is not
capable of being cured at all or within such 30 day period, or which has been
the subject of a prior failure within the preceding 180 days, or which is a
willful and knowing breach by Borrower.
11.1.5. Default Under Security Documents/Other Agreements. Any
-------------------------------------------------
event of default shall occur under, or Borrower shall default in the performance
or observance of any term, covenant, condition or agreement contained in, any of
the Security Documents, the Other Agreements or the GECC Documents and such
default shall continue beyond any applicable cure or grace period.
11.1.6. Other Defaults. There shall occur any default or event of
--------------
default on the part of Borrower under any agreement, document or instrument to
which Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Debt (other than the Obligations) if (i) such Debt
is Subordinated Debt or (ii) the payment or maturity of such Debt in an amount
exceeding $250,000 in the aggregate is accelerated in consequence of such event
of default or demand for payment of such Debt is made.
11.1.7. Uninsured Losses. Any material loss, theft, damage or
----------------
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
11.1.8. Solvency. Any Obligor shall cease to be Solvent.
--------
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11.1.9. Insolvency Proceedings. Any Insolvency Proceeding shall be
----------------------
commenced by or against Borrower (and, if against Borrower, the continuation of
such Insolvency Proceeding for more than 45 days), or Borrower shall make any
offer of settlement, extension or composition to Borrower's unsecured creditors
generally.
11.1.10. Business Disruption; Condemnation. There shall occur a
---------------------------------
cessation of a substantial part of the business of Borrower, any Subsidiary of
Borrower or any Guarantor for a period which may be reasonably expected to have
a Material Adverse Effect; or Borrower, any Subsidiary of Borrower or any
Guarantor shall suffer the loss or revocation of any license or permit now held
or hereafter acquired by Borrower or such Guarantor which is necessary to the
continued or lawful operation of its business; or Borrower or any Guarantor
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement pursuant to which Borrower or any
Guarantor leases, uses or occupies any Property shall be canceled or terminated
prior to the expiration of its stated term; or any material part of the
Collateral shall be taken through condemnation or the value of such Property
shall be materially impaired through condemnation.
11.1.11. Change of Ownership. Parent shall cease to own and control,
-------------------
beneficially and of record, all of the issued and outstanding capital stock of
Borrower.
11.1.12. ERISA. A Reportable Event shall occur which Lender, in its
-----
sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if Borrower, any Subsidiary of Borrower or any Guarantor is in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan resulting from Borrower's, such Subsidiary's or such
Guarantor's complete or partial withdrawal from such Plan.
11.1.13. Challenge to Loan Documents. Borrower, any Subsidiary of
---------------------------
Borrower or any Guarantor, or any Affiliate of any of them, shall challenge or
contest in any action, suit or proceeding the validity or enforceability of this
Agreement or any of the other Loan Documents, the legality or enforceability of
any of the Obligations or the perfection or priority of any Lien granted to
Lender.
11.1.14. Repudiation of or Default Under Guaranty Agreement. Any
--------------------------------------------------
Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by
such Guarantor, shall repudiate such Guarantor's liability thereunder, or shall
be in default under the terms thereof, or shall fail to confirm in writing,
promptly after receipt of Lender's written request therefor, such Guarantor's
ongoing liability under the Guaranty Agreement in accordance with the terms
thereof.
11.1.15. Criminal Forfeiture. Borrower, any Subsidiary of Borrower
-------------------
or any Guarantor shall be criminally indicted or convicted under any law that
could lead to a forfeiture of any Property of Borrower, any Subsidiary of
Borrower or any Guarantor.
11.1.16. Judgment. A judgment or order for the payment of money in an
--------
amount that exceeds the uncontested insurance available therefor by $250,000 or
more shall be entered against the Borrower by any court and such judgment or
order shall result in the creation of a Lien upon any asset of Borrower that is
not a Permitted Lien.
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11.2. ACCELERATION OF THE OBLIGATIONS. Without in any way limiting the
-------------------------------
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with this Agreement, upon or at any time after the
occurrence of an Event of Default and for so long as such Event of Default shall
exist, Lender may in its discretion declare the principal of and any accrued
interest on the Loans and all other Obligations to be, whereupon the same shall
become without further notice or demand (all of which further notice and demand
Borrower expressly waives), forthwith due and payable and Borrower shall
forthwith pay to Lender the entire principal of and accrued and unpaid interest
on the Loans and other Obligations plus reasonable attorneys' fees and expenses
----
if such principal and interest are collected by or through an attorney-at-law.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
specified in Section 11.1.9 hereof all of the Obligations shall become
automatically due and payable without declaration, notice or demand by Lender
and this Agreement shall automatically terminate as if terminated by Lender
pursuant to Section 5.2.1 and with the effect set forth in Section 5.2.4 hereof.
11.3. OTHER REMEDIES. Upon and after the occurrence of an Event of
--------------
Default, and for so long as such Event of Default shall exist, Lender shall have
and may exercise from time to time the following rights and remedies:
11.3.1. All of the rights and remedies of a secured party under the
UCC or under other Applicable Law, and all other legal and equitable rights and
remedies to which Lender may be entitled under any of the Loan Documents, all of
which rights and remedies shall be cumulative and shall be in addition to any
other rights or remedies contained in this Agreement or any of the other Loan
Documents, and none of which shall be exclusive.
11.3.2. The right to collect all amounts at any time payable to
Borrower from any Account Debtor or other Person at any time indebted to
Borrower.
11.3.3. The right to take immediate possession of the Collateral, and
to (i) require Borrower to assemble the Collateral, at Borrower's expense, and
make it available to Lender at a place designated by Lender which is reasonably
convenient to both parties, and (ii) enter any premises where any of the
Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, then
Borrower agrees not to charge Lender for storage thereof).
11.3.4. The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by Applicable Law, in lots or in bulk, for cash or on credit, all as
Lender, in its sole discretion, may deem advisable. Borrower agrees that any
requirement of notice to Borrower or any other Obligor of any proposed public or
private sale or other disposition of Collateral by Lender shall be deemed
reasonable notice thereof if given at least 10 days prior thereto, and such sale
may be at such locations as Lender may designate in said notice. Lender shall
have the right to conduct such sales on Borrower's premises, without charge
therefor, and such sales may be adjourned from time to time in accordance with
Applicable Law. Lender shall have the right to sell, lease or otherwise dispose
of the Collateral, or any part thereof, for cash, credit or any combination
thereof, and Lender may purchase all or any part of the Collateral at public or,
if permitted by law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against the Obligations.
The proceeds realized from the sale or other disposition of any Collateral may
be applied, after allowing 2 Business Days for collection, first to the costs,
expenses and attorneys' fees incurred by Lender in collecting the Obligations,
in enforcing the rights of Lender under the Loan Documents and in collecting,
retaking, completing, protecting, removing, storing, advertising for sale,
selling and delivering any Collateral, second to interest accrued with respect
to any of the Obligations; and third, to
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the principal of the Obligations. If any deficiency shall arise, Borrower and
each Guarantor shall remain jointly and severally liable to Lender therefor.
11.3.5. The right to require Borrower to deposit with Lender funds
equal to the LC Obligations and, if Borrower fails promptly to make such
deposit, Lender may advance such amount as a Revolver Loan (whether or not an
Out-of-Formula Condition exists or is created thereby). Any such deposit or
advance shall be held by Lender as a reserve to fund future payments on the LC
Guaranty. At such time as the LC Guaranty has been paid or terminated and all
Letters of Credit have been drawn upon or expired, any amounts remaining in such
reserve shall be applied against any outstanding Obligations, or, if all
Obligations have been indefeasibly paid in full, returned to Borrower.
Lender is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, tradenames, trademarks and advertising matter, or any Property of a
similar nature, as it pertains to the Collateral, in advertising for sale and
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to Lender's benefit.
11.4. SETOFF. In addition to any Liens granted under any of the Loan
------
Documents and any rights now or hereafter available under Applicable Law, Lender
is hereby authorized by Borrower at any time that an Event of Default exists,
without notice to Borrower or any other Person (any such notice being hereby
expressly waived) to set off and to appropriate and to apply any and all
deposits, general or special (including Debt evidenced by certificates of
deposit whether matured or unmatured (but not including trust accounts)) and any
other Debt at any time held or owing by Lender or its Affiliates to or for the
credit or the account of Borrower against and on account of the Obligations of
Borrower arising under the Loan Documents to Lender, including all Loans and all
claims of any nature or description arising out of or in connection with this
Agreement, irrespective of whether or not (i) Lender shall have made any demand
hereunder or (ii) Lender shall have declared the principal of and interest on
the Loans and other amounts due hereunder to be due and payable as permitted by
this Agreement and even though such Obligations may be contingent or unmatured
or (iii) the Collateral for the Obligations is adequate.
11.5. REMEDIES CUMULATIVE; NO WAIVER.
------------------------------
11.5.1 All covenants, conditions, provisions, warranties, guaranties,
indemnities, and other undertakings of Borrower contained in this Agreement and
the other Loan Documents, or in any document referred to herein or contained in
any agreement supplementary hereto or in any schedule or in any Guaranty
Agreement given to Lender or contained in any other agreement between Lender and
Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed
cumulative to and not in derogation or substitution of any of the terms,
covenants, conditions, or agreements of Borrower herein contained.
11.5.2. The failure or delay of Lender to require strict performance
by Borrower of any provision of this Agreement or to exercise or enforce any
rights, Liens, powers, or remedies hereunder or under any of the aforesaid
agreements or other documents or security or Collateral shall not operate as a
waiver of such performance, Liens, rights, powers and remedies, but all such
requirements, Liens, rights, powers, and remedies shall continue in full force
and effect until all Loans and all other Obligations owing or to become owing
from Borrower to Lender shall have been fully satisfied. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or any of the other Loan Documents and no Event of
Default by Borrower under this Agreement or any other Loan Documents shall be
deemed to have been suspended or waived by Lender, unless such suspension or
waiver is by an instrument
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in writing specifying such suspension or waiver and is signed by a duly
authorized representative of Lender and directed to Borrower.
11.5.3. If Lender shall accept performance by Borrower, in whole or
in part, of any obligation that Borrower is required by any of the Loan
Documents to perform only when a Default or Event of Default exists, or if
Lender shall exercise any right or remedy under any of the Loan Documents that
may not be exercised other than when a Default or Event of Default exists,
Lender's acceptance of such performance by Borrower or Lender's exercise of any
such right or remedy shall not operate to waive any such Event of Default or to
preclude the exercise by Lender of any other right or remedy.
SECTION 12. MISCELLANEOUS
12.1. POWER OF ATTORNEY. Borrower hereby irrevocably designates, makes,
-----------------
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
12.1.1. At such time or times as Lender or said agent, in its sole
discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which come into the possession of Lender or under Lender's
control.
12.1.2. At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent in its sole discretion may determine:
(i) demand payment of the Accounts from the Account Debtors, enforce payment of
the Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or similar document
in connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory and any other
Collateral; (xi) make and adjust claims under policies of insurance; and (xii)
do all other acts and things necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement.
12.2. INDEMNITY. Borrower hereby agrees to indemnify and defend Lender
---------
and hold Lender harmless from and against any Claims against Lender as the
result of Borrower's failure to observe, perform or discharge any of Borrower's
duties hereunder. In addition, Borrower shall indemnify and defend Lender
against and save Lender harmless from all Claims of any Person arising out of,
related to, or with respect to any transactions entered into pursuant to this
Agreement or any of the other Loan Documents or Lender's Lien upon any of the
Collateral, excluding, however, Claims arising by reason of Lender's own gross
negligence
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or intentional misconduct. Without limiting the generality of the foregoing,
this indemnity shall extend to any Claims asserted against Lender by any Person
under any Environmental Laws or similar laws by reason of Borrower's or any
other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. Additionally, if any Taxes (excluding
Taxes imposed upon or measured solely by the net income of Lender, but
including, any intangibles tax, stamp tax, recording tax or franchise tax) shall
be payable by Lender or Obligor on account of the execution or delivery of this
Agreement, or the execution, delivery, issuance or recording of any of the other
Loan Documents, or the creation of any of the Obligations hereunder, by reason
of any existing or hereafter enacted federal, state, foreign or local statute,
rule or regulation, Borrower will pay (or will promptly reimburse Lender for the
payment of) all such Taxes, including any interest and penalties thereon, and
will indemnify, defend and hold Lender harmless from and against all liability
in connection therewith. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 12.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.
12.3. MODIFICATION OF AGREEMENT; SALE OF INTEREST. This Agreement may not
-------------------------------------------
be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including Borrower's rights, title, interests, remedies,
powers, and duties hereunder or thereunder. Borrower hereby consents to
Lender's participation, sale, assignment, transfer or other disposition, at any
time or times hereafter, of the Obligations, this Agreement and any of the other
Loan Documents, or of any portion hereof or thereof, including Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder. In the
case of an assignment, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were
"Lender" hereunder and Lender shall be relieved of all obligations hereunder
upon any such assignment. Borrower agrees that it will use its best efforts to
assist and cooperate with Lender in any manner reasonably requested by Lender to
effect the sale of participations in or assignments of any of the Loan Documents
or any portion thereof or interest therein, including assisting in the
preparation of appropriate disclosure documents. Borrower further agrees that
Lender may disclose credit information regarding Borrower and its Subsidiaries
to any potential participant or assignee.
12.4. SEVERABILITY. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
Applicable Law, but if any provision of this Agreement shall be prohibited by or
invalid under Applicable Law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12.5. SUCCESSORS AND ASSIGNS. This Agreement, the Other Agreements and
----------------------
the Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 12.3
hereof.
12.6. CUMULATIVE EFFECT; CONFLICT OF TERMS. The provisions of the Other
------------------------------------
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 4.2
hereof and except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
12.7. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall
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<PAGE>
be deemed to be an original and all of which counterparts taken together shall
constitute but one and the same instrument.
12.8. NOTICE. All notices, requests and demands to or upon a party
------
hereto shall be in writing and shall be sent by certified or registered mail,
return receipt requested, personal delivery against receipt or by telecopier or
other facsimile transmission and shall be deemed to have been validly served,
given or delivered when delivered against receipt or 3 Business Days after
deposit in the U.S. mail, postage prepaid, or, in the case of facsimile
transmission, when received at the office where the noticed party's telecopier
is located, in each case addressed as follows:
If to Lender: Deutsche Financial Services Corporation
3225 Cumberland Boulevard, Suite 700
Atlanta, Georgia 30339
Attention: Philip Porcher, IX
Facsimile No.: 770.933.2993
Deutsche Financial Services Corporation
655 Merryville Centre Drive
St. Louis, Missouri 63141
Attention: General Counsel
Facsimile No.: 314.523.3228
With a courtesy copy to:
-----------------------
Parker, Hudson, Rainer & Dobbs LLP
1500 Marquis Two Tower
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Attention: Robert A. Crosby, Esq.
Facsimile No.: 404.522.8409
If to Borrower: Premier Graphics, Inc.
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
Attention: Lance T. Fair
Facsimile No.: 901.685.3600
With a courtesy copy to:
-----------------------
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2000
Nashville, Tennessee 38103
Attention: John A. Good, Esq.
Facsimile No.: 901.577.2303
or to such other address as each party may designate for itself by notice given
in accordance with this Section 12.8; provided, however, that any notice,
-------- -------
request or demand to or upon Lender pursuant to Section 4.1.1 or 5.2.2 hereof
shall not be effective until received by Lender. Any written notice or demand
that is not sent in
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<PAGE>
conformity with the provisions hereof shall nevertheless be effective on the
date that such notice is actually received by the noticed party.
12.9. LENDER'S CONSENT. Whenever Lender's consent is required to be
----------------
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
12.10. CREDIT INQUIRIES. Borrower hereby authorizes and permits Lender
----------------
(but Lender shall have no obligation) to respond to usual and customary credit
inquiries from third parties concerning Borrower or any of its Subsidiaries.
12.11. TIME OF ESSENCE. Time is of the essence of this Agreement, the
---------------
Other Agreements and the Security Documents.
12.12. ENTIRE AGREEMENT; EXHIBITS AND SCHEDULES. This Agreement and the
----------------------------------------
other Loan Documents, together with all other instruments, agreements and
certificates executed by the parties in connection therewith or with reference
thereto, embody the entire understanding and agreement between the parties
hereto and thereto with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and inducements, whether express
or implied, oral or written. Each of the Exhibits and Schedules attached hereto
are incorporated into this Agreement and by this reference made a part hereof.
12.13. INTERPRETATION. No provision of this Agreement or any of the
--------------
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.
12.14. CONFIDENTIALITY. Lender agrees to exercise reasonable efforts (and,
---------------
in any event, with at least the same degree of care as it ordinarily exercises
with respect to confidential information of its other customers) to keep any
confidential information delivered or made available by Borrower to it,
including information obtained by Lender by reason of a visit or investigation
by any Person contemplated in Section 9.1.1 hereof, confidential from any Person
other than individuals employed or retained by Lender who are or are expected to
become engaged in evaluating, approving, structuring, administering or otherwise
giving professional advice with respect to any of the Loans or Collateral;
provided, however, that nothing herein shall prevent Lender from disclosing such
- -------- -------
confidential information (i) to any party to this Agreement from time to time or
any Participant, (ii) pursuant the order of any court or administrative agency,
(iii) upon the request or demand of any regulatory agency or authority having
jurisdiction over Lender, (iv) which has been publicly disclosed other than by
an act or omission of Lender except as permitted herein, (v) to the extent
reasonably required in connection with any litigation (with respect to any of
the Loan Documents or any of the transactions contemplated thereby) to which
Lender or its Affiliates may be a party, (vi) to the extent reasonably required
in connection with the exercise of any remedies hereunder, (vii) to Lender's
Affiliates, Lender's legal counsel and independent auditors, and (viii) to any
actual or proposed Participant, assignee or other transferee of all or part of
Lender's rights hereunder so long as such transferee has agreed in writing to be
bound by the provisions of this Section.
12.15. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
-------------------------------
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
ATLANTA, GEORGIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA: PROVIDED, HOWEVER, THAT IF ANY
-------- -------
OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN GEORGIA, THE
LAWS OF SUCH
-59-
<PAGE>
JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF GEORGIA. AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER,
BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF FULTON COUNTY,
GEORGIA, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, SHALL HAVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO
THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
----- --- ----------
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
12.16. WAIVERS BY BORROWER. TO THE FULLEST EXTENT PERMITTED BY
-------------------
APPLICABLE LAW, BORROWER WAIVES (I) THE RIGHT TO TRIAL BY JURY (WHICH LENDER
HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL; (II) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,
EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD; (III) NOTICE PRIOR TO TAKING POSSESSION
OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (IV)
THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (V) NOTICE OF
ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A
MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER.
BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH
ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL
-60-
<PAGE>
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, this Agreement has been duly executed in Atlanta,
Georgia, on the day and year specified at the beginning of this Agreement.
PREMIER GRAPHICS, INC.
("Borrower")
By: /s/ Lance T. Fair
Name: Lance T. Fair
Title: Secretary
ACCEPTED IN ATLANTA, GEORGIA:
DEUTSCHE FINANCIAL SERVICES
CORPORATION ("Lender")
By: /s/ Conrad Lauten
Name: Conrad Lauten
Title: Senior Vice President
LIBOR Lending Office:
3225 Cumberland Boulevard
Suite 700
Atlanta, Georgia 30339
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<PAGE>
EXHIBIT A
---------
FORM OF REVOLVER NOTE
August 21, 1998
U.S. $15,000,000.00 Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, PREMIER GRAPHICS, INC. ("Borrower"), a
Delaware corporation, hereby unconditionally promises to pay to the order of
DEUTSCHE FINANCIAL SERVICES CORPORATION (herein, together with any subsequent
holder hereof, called the "Holder") the principal sum of $15,000,000 or such
lesser sum as may constitute the outstanding principal amount of all Revolver
Loans pursuant to the terms of the Loan Agreement (as defined below) on the date
on which such outstanding principal amounts become due and payable pursuant to
Section 4.3 of the Loan Agreement, in strict accordance with the terms thereof.
Borrower likewise unconditionally promises to pay to Holder interest from and
after the date hereof on the outstanding principal amount of Revolver Loans at
such interest rates, payable at such times, and computed in such manner as are
specified in the Loan Agreement, in strict accordance with the terms thereof.
This Revolver Note ("Note") is issued pursuant to, and is the "Note"
referred to in, the Loan and Security Agreement dated the date hereof (as the
same may be amended from time to time, the "Loan Agreement"), between Borrower
and Holder is and shall be entitled to all benefits thereof and of all Loan
Documents executed and delivered in connection therewith. All capitalized terms
used herein, unless otherwise defined herein, shall have the meanings ascribed
to such terms in the Loan Agreement.
The repayment of the principal balance of this Note is subject to the
provisions of Section 4.3.1 of the Loan Agreement. The entire unpaid principal
balance and all accrued interest on this Note shall be due and payable
immediately upon the termination of the Loan Agreement as set forth in Section
5.2.4 of the Loan Agreement.
All payments of principal and interest shall be made in Dollars in
immediately available funds as specified in the Loan Agreement.
Upon or after the occurrence of an Event of Default and for so long as such
Event of Default exists, the principal balance and all accrued interest of this
Note may be declared due and payable in the manner and with the effect provided
in the Loan Agreement, and the unpaid principal balance hereof shall bear
interest at the Default Rate as and when provided in the Loan Agreement.
Borrower agrees to pay, and save Holder harmless against, any liability for the
payment of, all costs and expenses, including, but not limited to, reasonable
attorneys' fees, if this Note is collected by or through an attorney-at-law.
All principal amounts of Revolver Loans made by Holder to Borrower pursuant
to the Loan Agreement, and all accrued and unpaid interest thereon, shall be
deemed outstanding under this Note and shall continue to be owing by Borrower
until paid in accordance with the terms of this Note and the Loan Agreement.
In no contingency or event whatsoever, whether by reason of advancement of
the proceeds hereof or otherwise, shall the amount paid or agreed to be paid to
Holder for the use, forbearance or detention of money advanced hereunder exceed
the highest lawful rate permissible under any law which a court of competent
jurisdiction may deem applicable hereto; and, in the event of any such payment
inadvertently paid by Borrower or inadvertently received by Holder, such excess
sum shall be, at Borrower's option, returned to Borrower
<PAGE>
forthwith or credited as a payment of principal, but shall not be applied to the
payment of interest. It is the intent hereof that Borrower not pay or contract
to pay, and that Holder not receive or contract to receive, directly or
indirectly in any manner whatsoever, interest in excess of that which may be
paid by Borrower under Applicable Law.
Time is of the essence of this Note. To the fullest extent permitted by
Applicable Law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be interpreted in such
a manner as to be effective and valid under Applicable Law, but if any provision
of this Note shall be prohibited or invalid under Applicable Law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Holder in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Holder of any right or
remedy preclude any other right or remedy. Holder, at its option, may enforce
its rights against any Collateral securing this Note without Holder enforcing
its rights against any Borrower, any Guarantor of the indebtedness evidenced
hereby or any other property or indebtedness due or to become due to Borrower.
Borrower agrees that, without releasing or impairing Borrower's liability
hereunder, Holder may at any time release, surrender, substitute or exchange any
Collateral securing this Note and may at any time release any party primarily or
secondarily liable for the indebtedness evidenced by this Note.
The rights of Holder and obligations of Borrower hereunder shall be
construed in accordance with and governed by the laws (without giving effect to
the conflict of law principles thereof) of the State of Georgia. This Note is
intended to take effect as an instrument under seal under Georgia law.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed under seal
and delivered by its duly authorized officers on the date first above written.
BORROWER:
--------
ATTEST: PREMIER GRAPHICS, INC.
_________________________ By:____________________________________
Secretary Title:______________________________
[CORPORATE SEAL]
-2-
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
[Letterhead of Borrower]
__________________, 19__
Deutsche Financial Services Corporation
3225 Cumberland Boulevard
Suite 700
Atlanta, Georgia 30339
The undersigned, the chief financial officer of Premier Graphics, Inc., a
Delaware corporation ("Borrower"), gives this certificate to Deutsche Financial
Services Corporation ("Lender") in accordance with the requirements of Section
9.1.3 of that certain Loan and Security Agreement dated August 21, 1998, between
Borrower and Lender ("Loan Agreement"). Capitalized terms used in this
Certificate, unless otherwise defined herein, shall have the meanings ascribed
to them in the Loan Agreement.
1. Based upon my review of the balance sheets and statements of
income of Parent for the [fiscal year] [monthly period] ending
__________________, 19__, copies of which are attached hereto, I hereby certify
that:
(a) EBITDA is $_________;
(b) Fixed Charge Coverage Ratio is ____ to 1;
(c) Leverage Ratio is ____ to 1;
(d) Capital Expenditures during the period and for the fiscal year to
date total $__________ and $__________, respectively.
2. No default exists on the date hereof under any lease covering
business premises leased by Borrower, other than:
_________________________________ [if none, so state]; and
3. No Default exists on the date hereof, other than: _____________
________________________________________________ [if none, so
state]; and
<PAGE>
4. No Event of Default exists on the date hereof, other than________
____________________________________________________ [if none, so state].
5. As of the date hereof, Borrower is current in its payment of all
accrued rent and other charges to Persons who own or lease any premises where
any of the Collateral is located, and there are no pending disputes or claims
regarding Borrower's failure to pay or delay in payment of any such rent or
other charges.
Very truly yours,
-------------------------------
Chief Financial Officer
-2-
<PAGE>
EXHIBIT C
---------
FORM OF NOTICE OF BORROWING
Date ______________, ______
Deutsche Financial Services Corporation
3225 Cumberland Boulevard
Suite 700
Atlanta, Georgia 30339
Attention: Loan Administration Officer
- ---------
Re: Loan and Security Agreement dated August 21, 1998, by and between
Premier Graphics, Inc. and Deutsche Financial Services Corporation (as at
any time amended, the "Loan Agreement")
Gentlemen:
This Notice of Borrowing is delivered to you pursuant to Section 3.1.1 of
the Loan Agreement. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings attributable thereto in the Loan Agreement.
Borrower hereby requests a Revolver Loan in the aggregate principal amount of
$______________ to be made on _____________, _____, and to consist of:
Check as applicable: [ ] Prime Rate Loans in the aggregate principal
amount of $_____________
[ ] LIBOR Loans in the aggregate principal amount of $___________,
with Interest Periods as follows:
(i) As to $_____________, an Interest Period of ______ month(s);
(ii) As to $_____________, an Interest Period of ______ months;
(iii) As to $_____________, an Interest Period of ______ months.
Borrower hereby ratifies and reaffirms all of its liabilities and
obligations under the Loan Documents and Borrower hereby certifies that no
Default or Event of Default exists on the date hereof.
Borrower has caused this Notice of Borrowing to be executed and delivered
by its duly authorized representative, this ______ day of _____________, _____.
________________________________________
By:____________________________________
Title:_______________________________
<PAGE>
EXHIBIT D
---------
FORM OF NOTICE OF CONVERSION/CONTINUATION
Date ______________,______
Deutsche Financial Services Corporation
3225 Cumberland Boulevard
Suite 700
Atlanta, Georgia 30339
Attention: Loan Administration Officer
- ---------
Re: Loan and Security Agreement dated August 21, 1998, by and between
Premier Graphics, Inc. and Deutsche Financial Services Corporation (as at
any time amended, the "Loan Agreement")
Gentlemen:
This Notice of Conversion/Continuation is delivered to you pursuant to
Section 2.1.2 of the Loan Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings attributable thereto in
the Loan Agreement. Borrower hereby gives notice of its request as follows:
Check as applicable:
[ ] A conversion of Loans from one Type to another, as follows:
(i) The requested date of the proposed conversion is ______________,
19__ (the "Conversion Date");
(ii) The Type of Loans to be converted pursuant hereto are presently
__________________ [select either LIBOR Loans or Prime Rate Loans] in the
principal amount of $_____________ outstanding as of the Conversion Date;
(iii) The portion of the aforesaid Loans to be converted on the
Conversion Date is $_____________ (the "Conversion Amount");
(iv) The Conversion Amount is to be converted into a ____________
[select either a LIBOR Loan or a Prime Rate Loan] (the "Converted Loan") on
the Conversion Date.
(v) [In the event Borrower selects a LIBOR Loan:] Borrower hereby
requests that the Interest Period for such Converted Loan be for a duration
of _____ [insert length of Interest Period].
[ ] A continuation of LIBOR Loans for new Interest Period, as follows:
(i) The requested date of the proposed continuation is
_______________, 19__ (the "Continuation Date");
<PAGE>
(ii) The aggregate amount of the LIBOR Loans subject to such
continuation is $__________________;
(iii) The duration of the selected Interest Period for the LIBOR
Loans which are the subject of such continuation is: _____________ [select
duration of applicable Interest Period];
Borrower hereby ratifies and reaffirms all of its liabilities and
obligations under the Loan Documents and certifies that no Default or Event of
Default exists on the date hereof.
Borrower has caused this Notice of Conversion/Continuation to be executed
and delivered by its duly authorized representative, this _______ day of
______________, 19__.
________________________________
By:____________________________________
Title:______________________________
-2-
<PAGE>
EXHIBIT E
LETTER OF CREDIT PROCUREMENT REQUEST
Deutsche Financial Services Corporation
Suite 700
3225 Cumberland Boulevard
Atlanta, Georgia 30339
Attention: Office Head
This Letter of Credit Procurement Request is delivered to you pursuant to
the Loan and Security Agreement, dated August 21, 1998, among Premier Graphics,
Inc., a Delaware corporation (the "Borrower"), and Deutsche Financial Services
Corporation (the "Lender"), as the same may be amended, supplemented, restated
or otherwise modified from time to time (the "Loan Agreement"). Unless
otherwise defined herein, terms used herein have the meanings assigned to them
in the Loan Agreement.
Borrower hereby requests Lender to join in the execution of an LC
Application for the issuance of a Letter of Credit by Bank, as follows,
(1) Amount of Letter of Credit: $_____________________
(2) Issuance Date: _____________________
(3) Beneficiary's Name: _____________________
(4) Beneficiary's Address: _____________________
_____________________
_____________________
_____________________
_____________________
(5) Expiry Date: _____________________
(6) Draw Conditions: _____________________
_____________________
_____________________
_____________________
(7) Single draw [ ] or Multiple draw [ ]
(8) Purpose of Letter of Credit:
______________________
______________________
______________________
______________________
______________________
Attached hereto is the Bank's form of LC Application, completed with the
details of the Letter of Credit requested herein.
<PAGE>
Borrower hereby certifies that each of the LC Conditions is now, and will
on the date of issuance of the Letter of Credit, be satisfied in all respects
and that no Default or Event of Default exists. Borrower hereby ratifies and
reaffirms all of the Loan Documents and Obligations arising thereunder.
IN WITNESS WHEREOF, Borrower has caused this Letter of Credit Procurement
Request to be executed and delivered by its duly authorized officer, this ___
day of _________________, ____.
PREMIER GRAPHICS, INC.
("Borrower")
By: ____________________________________
Name: _________________________________
Title: __________________________________
-2-
<PAGE>
EXHIBIT F
---------
OPINION LETTER REQUIREMENTS
With respect to Borrower and each Guarantor, Borrowers' counsel's opinion
letter should address the following in a manner satisfactory to Lender:
1. Borrower's and each Guarantor's due incorporation, valid existence, good
standing and qualification as a foreign corporation.
2. Corporate name of Borrower and each Guarantor.
3. Borrower and each Guarantor's corporate power to execute, deliver and
perform the Loan Documents to which it is a party.
4. Borrower and each Guarantor's due authorization to execute, deliver and
perform the Loan Documents, and their due execution and delivery thereof.
5. Borrower and each Guarantor's execution, delivery and performance of the
Loan Documents do not (a) violate the articles or bylaws, (b) cause a breach or
default under any agreement, (c) violate any law, regulation, judgment or order,
or (d) result in or require a Lien or other encumbrance other than in favor of
Lender.
7. The Loan Documents as legal, valid and binding obligations, enforceable
against all Obligors in accordance with their respective terms, subject to
standard bankruptcy and other creditor's rights and equity exceptions.
8. Counsel's lack of knowledge of litigation or other proceedings, except as
disclosed in Loan Agreement.
9. Absence of any registration, filing, consent or approval requirement of
governmental authority in connection with the execution, delivery and
performance of the Loan Documents.
10. Non-violation by the Loan Documents of any Applicable Laws relating to
interest or usury.
11. Due payment of all applicable taxes and fees required to be paid in
connection with the Loans, the Loan Documents, UCC-1 financing statements and
other Security Documents.
12. Creation in favor of Lender of a duly perfected security interest in the
Collateral described in the Security Documents.
13. Absence of violation of Section 7 of the Securities Exchange Act of 1934,
as amended, any regulations issued pursuant thereto, or regulations G, T, U and
X of the Board of Governors of the Federal Reserve System, by the transactions
contemplated by the Loan Documents.
14. Absence of requirement under the laws of applicable states for Lender to
qualify in such states to enter into or enforce the provisions of the Loan
Documents.
<PAGE>
SCHEDULE 7.1.1
BUSINESS LOCATIONS
1. Borrower currently has the following business locations, and no others:
Chief Executive Office:
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
Other Locations:
1. B&M Division (Lease)
2500 Lamar Avenue
Memphis, Tennessee 38114
2. Lithograph Printing Company (Lease)
4222 Pilot Drive
Memphis, Tennessee 38118
3. Argus Press Division (Lease)
7440 N. Natchez Avenue
Niles, Illinois 60648
4. Phoenix Division (Lease)
5664 New Peachtree Road
Atlanta, Georgia 30341
5. King Mailing Division (Lease)
5588 New Peachtree Road
Chamblee, Georgia
6. Jones Printing Company, Inc. Division (Lease)
1907 Crutchfield Street
Chattanooga, Tennessee 37486
7. Hederman-Arkansas Division (Lease)
Lyon Building
401 W. Capitol
Little Rock, Arkansas
8. Hederman-Mississippi Division (Lease)
500 Steed Road at I-55 North
Ridgeland, Mississippi 39158
<PAGE>
9. Phillips Division
807 Old Missouri Road
Spingdale, Arkansas 72674
10. Phillips Division (Warehouse)
1845 Turnbow Avenue
Springdale, Arkansas 72764
11. McQuiddy Division
711 Spence Lane
Nashville, Tennessee 37217
12. Sutherland Companies Division - Iowa
525 North Front Street
Montezuma, Iowa 50171
13. Sutherland Division - Missouri
2160 Industrial Court North
Ozark, Missouri 65721
14. Blackwell Lithographers
120 Lake Drive
Ridgeland, Mississippi 39218
2. Borrower maintains its books and records relating to Accounts and General
Intangibles at:
6075 Poplar Avenue, Suite 401
Memphis, Tennessee 38119
3. Borrower has had no office, place of business or agent for process located
in any county other than as set forth above, except:
None
4. Each Subsidiary currently has the following business locations, and no
others:
Premier Graphics, Inc. has no subsidiaries
Chief Executive Office: Not Applicable
Other Locations: Not Applicable
5. Each Subsidiary maintains its books and records relating to Accounts and
General Intangibles at:
-2-
<PAGE>
Premier Graphics, Inc. has no subsidiaries
6. Each Subsidiary has had no office, place of business or agent for process
located in any county other than as set forth above, except:
Premier Graphics, Inc. has no subsidiaries
7. The following bailees, warehouseman, similar parties and consignees hold
inventory of Borrower or one of its Subsidiaries:
<TABLE>
<CAPTION>
=============================================================================================
Name and Address of Party Nature of Relationship Amount of Inventory Owner of Inventory
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Not Applicable
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
=============================================================================================
</TABLE>
-3-
<PAGE>
SCHEDULE 8.1.1
JURISDICTIONS IN WHICH BORROWER
AND ITS SUBSIDIARIES
ARE AUTHORIZED TO DO BUSINESS
Name of Entity Jurisdictions
-------------- -------------
Premier Graphics, Inc. Delaware (Domestic)
Arkansas
Georgia
Illinois
Iowa
Mississippi
Missouri
Tennessee
[Premier Graphics, Inc. has no subsidiaries]
<PAGE>
SCHEDULE 8.1.4
CAPITAL STRUCTURE
1. The classes and number of authorized shares of Borrower and each Subsidiary
and the record owner of such shares are as follows:
Borrower:
- --------
<TABLE>
<CAPTION>
==========================================================================================
Number of Shares Number of Shares
Class of Stock Issued and Outstanding Record Owners Authorized but Unissued
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common 100 Master Graphics, Inc. 900
- ------------------------------------------------------------------------------------------
==========================================================================================
</TABLE>
Subsidiaries:
- ------------
<TABLE>
<CAPTION>
==========================================================================================
Number of Shares Number of Shares
Class of Stock Issued and Outstanding Record Owners Authorized but Unissued
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Not Applicable
- ------------------------------------------------------------------------------------------
==========================================================================================
</TABLE>
2. The number, nature and holder of all other outstanding Securities of
Borrower and each Subsidiary are as follows:
None
3. The correct name and jurisdiction of incorporation of each Subsidiary of
Borrower and the percentage of its issued and outstanding shares owned by
Borrower are as follows:
<TABLE>
<CAPTION>
==========================================================================================
Percentage of Shares
Name Jurisdiction of Incorporation Owned by Borrower
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Premier Graphics, Inc. has no
subsidiaries
- ------------------------------------------------------------------------------------------
==========================================================================================
</TABLE>
4. The name of each of Borrower's corporate or joint venture Affiliates and
the nature of the affiliation are as follows:
None
<PAGE>
SCHEDULE 8.1.5
CORPORATE NAMES
1. Borrower's correct corporate name, as registered with the Secretary of
State of the State of Delaware, is:
Premier Graphics, Inc.
2. In the conduct of its business, Borrower has used the following names:
Premier Graphics of Tennessee, Inc.
Lithograph Printing Company of Memphis
Blackwell Lithographers
B&M Printing
The Argus Press
Jones Printing Company, Inc.
Jones Colourworks, Inc.
Phoenix Communications
King Mailing Services
McQuiddy Printing Company
Hederman Brothers
Sutherland Companies
3. Each Subsidiaries' correct corporate name, as registered with the Secretary
of State of the State of its incorporation, is:
Not Applicable
4. In the conduct of its business, each Subsidiary has used the following
names:
Not Applicable
<PAGE>
SCHEDULE 8.1.13
TAX IDENTIFICATION NUMBERS OF SUBSIDIARIES
Subsidiary Number
---------- ------
NOT APPLICABLE
Premier Graphics, Inc. has no subsidiaries
<PAGE>
SCHEDULE 8.1.15
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
1. Borrower's and its Subsidiaries' patents:
<TABLE>
<CAPTION>
==========================================================================
Status in Federal Registration Registration
Patent Owner Patent Office Number Date
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
None
- --------------------------------------------------------------------------
==========================================================================
</TABLE>
2. Borrower's and its Subsidiaries' trademarks:
<TABLE>
<CAPTION>
=====================================================================================
Status in Federal Registration Registration
Trademark Owner Trademark Office Number Date
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Miscellaneous Premier Registered 1194092 April 20, 1982
Design Graphics,
Inc.
- -------------------------------------------------------------------------------------
=====================================================================================
</TABLE>
3. Borrower's and its Subsidiaries' copyrights:
<TABLE>
<CAPTION>
=============================================================================
Status in Federal Registration Registration
Copyrights Owner Copyright Office Number Date
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
None
- -----------------------------------------------------------------------------
=============================================================================
</TABLE>
4. Borrower's and its Subsidiaries' licenses (other than routine business
licenses, authorizing them to transact business in local jurisdictions):
<TABLE>
<CAPTION>
==================================================================
Name of License Nature of License Licensor Term of License
<S> <C> <C> <C>
- ------------------------------------------------------------------
None
- ------------------------------------------------------------------
==================================================================
</TABLE>
<PAGE>
SCHEDULE 8.1.18
CONTRACTS RESTRICTING BORROWER'S RIGHT TO INCUR DEBTS
Contracts that restrict the right of Borrower to incur Debt:
<TABLE>
<CAPTION>
================================================================================================
Title of Contract Identity of Parties Nature of Restriction Term of Contract
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Loan and Security Premier Graphics, Inc., Prohibition against August, 2003
Agreement Master Graphics, Inc. and incurring debt other than
General Electrics Capital itemized types of debt and
Corporation, as Agent listed debt including debt
to Deutsche Financial
Services Corporation
- ------------------------------------------------------------------------------------------------
================================================================================================
</TABLE>
NOTE: THIS SCHEDULE ASSUMES THAT THE GECC LOAN MODIFICATION WILL CLOSE
SIMULTANEOUSLY WITH THE DEUTSCHE CLOSING.
<PAGE>
SCHEDULE 8.1.19
LITIGATION
1. Actions, suits, proceedings and investigations pending against Borrower or
any Subsidiary:
<TABLE>
<CAPTION>
=============================================================================================================
Title of Action Nature of Action Complaining Parties Jurisdiction or Tribunal
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
None other than those
which occur during the
normal course of
business and are handled
and covered by
Borrower's insurance
carrier and
- -------------------------------------------------------------------------------------------------------------
Keith Proesch, Plaintiff The nature of the action Keith Proesch, Plaintiff Pulaski County, Iowa
v. Sutherland Printing is slander. The Company
Company and Richard believes that it is not
Doll in this Individual material.
Capacity and his Officer
Capacity
=============================================================================================================
</TABLE>
2. The only threatened actions, suits, proceedings or investigations of which
Borrower or any Subsidiary is aware are as follows:
None
<PAGE>
SCHEDULE 8.1.21
CAPITALIZED LEASES
Borrower and its Subsidiaries have the following capitalized leases:
<TABLE>
<CAPTION>
=================================================================================================
Lessee Lessor Term of Lease Property Covered
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Premier Graphics, Inc. - American National Bank & 60 Months - Heidelberg
Argus Division Trust Company of Chicago September, Binder
2002 Equipment
- -------------------------------------------------------------------------------------------------
=================================================================================================
</TABLE>
OPERATING LEASES
Borrower and its Subsidiaries have the following operating leases:
<TABLE>
<CAPTION>
=======================================================================================================
Lessee Lessor Term of Lease Property Covered
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Master Graphics, Inc. Crescent Center 60 Months - February 6075 Poplar Avenue
(Corporate Offices of Limited 28, 2003 Memphis, Tennessee
Parent Company of Partnership 38119
Premier Graphics, Inc.)
- -------------------------------------------------------------------------------------------------------
Premier Graphics, Inc. John P. Miller 10 Years - November 30, 2500 Lamar Avenue
2002 Memphis, Tennessee
38114
- -------------------------------------------------------------------------------------------------------
Premier Graphics, Inc. Graphic Development 10 Years - July 31, 2004 4222 and 4240 Pilot Drive
Company, Inc. Memphis, Tennessee
Premier Graphics, Inc. LaSalle National Bank 10 Years - December 31, 7440 Natchez
2002 Niles, Illinois 60648
Premier Graphics, Inc. RFTA Associates, LTD 6 Years - April 30, 2001 5664 New Peachtree Road
Chamblee, Georgia 30341
Premier Graphics, Inc. RSH Properties, LLC 5 Years - October 31, 5588 New Peachtree Road
2002 Chamblee, Georgia 30341
Premier Graphics, Inc. Wendell Burns 10 Years - December 5, 2205 Dodson Avenue
2007 Chattanooga, Tennessee
37486
Premier Graphics, Inc. Arrowhead Real Estate, 10 Years - February 28, 500 Steed Road at I-55 N
LLC 2008 Ridgeland, Mississippi
39158
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================
Lessee Lessor Term of Lease Property Covered
<S> <C> <C> <C>
Premier Graphics, Inc. FL Building Corp. Year to Year 401 W. Capitol
Little Rock, Arkansas
72203
Premier Graphics, Inc. Phil Phillips, Jr. 10 Years - March 31, 807 Old Missouri Road
2008 Springdale, Arkansas
72764
=======================================================================================================
</TABLE>
<PAGE>
SCHEDULE 8.1.22
PENSION PLANS
Borrower and its Subsidiaries have the following Plans:
<TABLE>
<CAPTION>
==================================================================================
Party Type of Plan
<S> <C>
- ----------------------------------------------------------------------------------
Hederman Brothers, Inc. Pension Plan
- ----------------------------------------------------------------------------------
Jones Printing Division GCIU Employer Retirement Fund (multiemployer plan
covering certain employees of Jones Printing Division)
- ----------------------------------------------------------------------------------
Subsidiaries - None
- ----------------------------------------------------------------------------------
==================================================================================
</TABLE>
<PAGE>
SCHEDULE 8.1.24
COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES
1. Borrower and its Subsidiaries are parties to the following collective
bargaining agreements:
<TABLE>
<CAPTION>
=====================================================================
Type of Agreement Parties Term of Agreement
<S> <C> <C>
- ---------------------------------------------------------------------
Jones Printing Division Employees Collective Bargaining Agreement
- ---------------------------------------------------------------------
=====================================================================
</TABLE>
2. Material grievances, disputes of controversies with employees are as
follows:
<TABLE>
<CAPTION>
===============================================================
Parties Involved Nature of Grievance, Dispute or Controversy
<S> <C>
- ---------------------------------------------------------------
None
- ---------------------------------------------------------------
===============================================================
</TABLE>
3. Threatened strikes, work stoppages and asserted pending demands for
collective bargaining are as follows:
<TABLE>
<CAPTION>
====================================
Parties Involved Nature of Matter
<S> <C>
- ------------------------------------
None
- ------------------------------------
====================================
</TABLE>
<PAGE>
SCHEDULE 9.2.5
PERMITTED LIENS
<TABLE>
<CAPTION>
========================================================================================================================
Debtor/Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Secured Party: Accounts, Chattel Paper, Contracts,
a) GECC Documents, General Intangibles, Instruments,
4 North Park Drive, 5th Floor Inventory, Equipment, Intellectual Property,
Cockeysville Hunt Valley, MD 21030 Investment Property
b) GECC, (Itself and as Agent)
777 Long Ridge Road
Building B, 1st Floor
Stanford, CT
c) GECC, (Itself and as Agent)
777 Long Ridge Road
Building B, 1st Floor
Stanford, CT
Debtors: Premier Graphics, Inc.; Premier Graphics of
Tennessee, Inc.; Master Graphics, Inc.; Master Printing;
B&M Printing, Inc.; B&M Printing; Lithograph Printing
Company of Memphis, Inc.; Lithograph Printing Company;
Blackwell Lithographers, Inc.; Sutherland Printing, Inc.;
Hederman Brothers, Inc.; McQuiddy Printing Company;
Digital Spectrum, LLC; Sutherland Companies; Sutherland
Printing; The Argus Press, Inc.; The Argus Press; Argus;
Phoenix Communications, Inc.; King Mailing Services,
Inc.; Jones Printing Company, Inc.; Jones Colorworks;
Jones Colourworks, Inc.; Jones Colourworks
#972047378/June 17, 1997
Tennessee Secretary of State
- ------------------------------------------------------------------------------------------------------------------------
2. Secured Party: Accounts, Chattel Paper, Contracts, Documents,
a) GECC General Intangibles, Instruments, Inventory,
4 North Park Drive, 5th Floor Equipment, Intellectual Property, Investment
Cockeysville Hunt Valley, MD 21030 Property
b) GECC, (Itself and as Agent)
777 Long Ridge Road
Building B, 1st Floor
Stanford, CT
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Debtor/Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
c) GECC, (Itself and as Agent)
777 Long Ridge Road
Building B, 1st Floor
Stanford, CT
Debtors: Premier Graphics, Inc.; Premier Graphics of
Tennessee, Inc.; Master Graphics, Inc.; Master Printing;
B&M Printing, Inc.; B&M Printing; Lithograph Printing
Company of Memphis, Inc.; Lithograph Printing Company;
Blackwell Lithographers, Inc.; Sutherland Printing, Inc.;
Hederman Brothers, Inc.; McQuiddy Printing Company;
Digital Spectrum, LLC; Sutherland Companies; Sutherland
Printing; The Argus Press, Inc.; The Argus Press; Argus;
Phoenix Communications, Inc.; King Mailing Services,
Inc.; Jones Printing Company, Inc.; Jones Colorworks;
Jones Colourworks, Inc.; Jones Colourworks
#GR9375/June 18, 1997
Shelby County, Tennessee
3. Holder: GECC Open-end leasehold Deed of Trust with Security
4 North Park Drive, 5th Floor Agreement, Financing Statement for Fixture
Cockeysville Hunt Valley, MD 21030 Filing and Assignment of Rents
Grantor: Premier Graphics, Inc.
#GS0900/June 23, 1997
Shelby County, Tennessee
4. Secured Party: Accounts, Chattel Paper, Contracts, Documents,
a) GECC General Intangibles, Instruments, Inventory,
4 North Park Drive, 5th Floor Equipment, Intellectual Property, Investment
Cockeysville Hunt Valley, MD 21030 Property
b) GECC, (Itself and as Agent)
777 Long Ridge Road
Building B, 1st Floor
Stanford, CT
c) GECC, (Itself and as Agent)
777 Long Ridge Road
Building B, 1st Floor
Stanford, CT
Debtors: Premier Graphics, Inc.; Premier Graphics of
Tennessee, Inc.; Master Graphics, Inc.; Master Printing;
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Debtor/Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
B&M Printing, Inc.; B&M Printing; Lithograph Printing
Company of Memphis, Inc.; Lithograph Printing Company;
Blackwell Lithographers, Inc.; Sutherland Printing, Inc.;
Hederman Brothers, Inc.; McQuiddy Printing Company;
Digital Spectrum, LLC; Sutherland Companies; Sutherland
Printing; The Argus Press, Inc.; The Argus Press; Argus;
Phoenix Communications, Inc.; King Mailing Services,
Inc.; Jones Printing Company, Inc.; Jones Colorworks;
Jones Colourworks, Inc.; Jones Colourworks
#0441997012462/December 11, 1997
Dekalb County, Georgia
5. Secured Party: Polychrome Corporation Equipment (PMPC-32-XT 32" Automatic Plate
222 Bridge Plaza South Processors (2))
Ft. Lee, NJ 07024
Debtor: Phoenix Communications
#060199605424/March 20, 1996
Fulton County, Georgia
6. Secured Party: Polychrome Corporation Equipment (Kodak Digital Approval Proofing
222 Bridge Plaza South System)
Ft. Lee, NJ 07024
Debtor: Phoenix Communications
#060199607178/April 15, 1996
Fulton County, Georgia
7. Secured Party: AT&T Capital Leasing Services Inc. True Lease (Equipment). Notice Purposes Only.
550 Cochituate Rd., P.O. Box 9104
Framingham, MA 01701
Debtor: King Mailing Services, Inc.
#007-97-007422/October 17, 1997
Barrow County, Georgia
8. Secured Party: AT&T Capital Leasing Services Inc. True Lease (Equipment). Notice Purposes Only.
550 Cochituate Rd., P.O. Box 9104
Framingham, MA 01701
Debtor: King Mailing Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Debtor/Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
#007-97-006526/September 12, 1997
Barrow County, Georgia
9. Secured Party: American National Bank and Trust Equipment
Company of Chicago
33 North LaSalle Street
Chicago, Illinois 60690
Debtor: The Argus Press, Inc.
#2099322/February 3, 1986
Illinois Secretary of State
10. Secured Party: American National Bank and Trust Equipment
Company of Chicago
33 North LaSalle Street
Chicago, Illinois 60690
Debtor: The Argus Press, Inc.
#2257958/March 23, 1987
Illinois Secretary of State
11. Secured Party: American National Bank and Trust Equipment
Company of Chicago
33 North LaSalle Street
Chicago, Illinois 60690
Debtor: The Argus Press, Inc.
#2529699/January 31, 1989
Illinois Secretary of State
12. Secured Party: American National Bank and Trust Equipment
Company of Chicago
33 North LaSalle Street
Chicago, Illinois 60690
Debtor: The Argus Press, Inc.
#2584865/June 9, 1989
Illinois Secretary of State
13. Secured Party: American National Bank and Trust Equipment
Company of Chicago
33 North LaSalle Street
Chicago, Illinois 60690
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Debtor/Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Debtor: The Argus Press, Inc.
#2612095/August 21, 1989
Illinois Secretary of State
14. Secured Party: Graphic Color Corporation Equipment
750 Arthur Avenue
Elk Grove Village, Illinois 60007
Debtor: The Argus Press, Inc.
#3297067/April 18, 1994 (Copy hard to read - Compare
filing information with original copy)
Illinois Secretary of State
15. Consignor: Kohl & Madden Printing Ink Consignment of Inventory
750 Arthur Avenue
Elk Grove Village, Illinois 60007
Consignee: The Argus Press, Inc.
#3491984/January 11, 1996
Illinois Secretary of State
16. Consignor: Kohl & Madden Printing Ink Consignment of Equipment
750 Arthur Avenue
Elk Grove Village, Illinois 60007
Consignee: The Argus Press, Inc.
#3491985/January 11, 1996
Illinois Secretary of State
17. Consignor: D.S. America, Inc. Equipment
5110 Tollview Drive
Rolling Meadows, Illinois 60008
Consignee: The Argus Press, Inc.
#3552091/June 11, 1998
(Copy hard to read - Compare filing information with
original copy)
Illinois Secretary of State
18. Secured Party: American National Bank & Trust Equipment Lease
Company of Chicago
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Debtor/Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
3955 Orchard Hill Place Drive
Suite 340
Novi, MI 48375
Debtor: The Argus Press, Inc.
#3574723/August 6, 1996
Illinois Secretary of State
19. Secured Party: Accounts, Chattel Paper, Contracts, Documents,
GECC General Intangibles, Instruments, Inventory,
4 North Park Drive, 5th Floor Equipment, Intellectual Property, Investment
Cockeysville Hunt Valley, MD 21030 Property
Debtors: Premier Graphics, Inc.; Premier Graphics of
Tennessee, Inc.; Master Graphics, Inc.; Master Printing;
B&M Printing, Inc.; B&M Printing; Lithograph Printing
Company of Memphis, Inc.; Lithograph Printing Company;
Blackwell Lithographers, Inc.; Sutherland Printing, Inc.;
Hederman Brothers, Inc.; McQuiddy Printing Company;
Digital Spectrum, LLC; Sutherland Companies; Sutherland
Printing; The Argus Press, Inc.; The Argus Press; Argus;
Phoenix Communications, Inc.; King Mailing Services,
Inc.; Jones Printing Company, Inc.; Jones Colorworks;
Jones Colourworks, Inc.; Jones Colourworks
#3738694/September 11, 1997
Illinois Secretary of State
29. Secured Party: Full Photo Film, USA, Inc. Equipment
555 Taxter Road
Elmsford, NY 10523
Debtor: Argus Press, Inc.
#3836507/April 20, 1998
Illinois Secretary of State
30. Secured Party: American National Bank & Trust Equipment Lease - Notice Purposes Only
Company of Chicago
660 Woodward Avenue, Suite 200
Equipment Leasing Department,
Detroit, MI 48226
Debtor: Premier Graphics, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Debtor/Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
#3778533/December 23, 1997
Illinois Secretary of State
31. Lessor: AT&T Credit Corporation Equipment Lease
2 Gatehall Drive
Parsippany, NJ 07054
Debtor: Premier Graphics, Inc.
#3801337/February 13, 1998
Illinois Secretary of State
32. GECC various mortgage liens, security title and
assignments of rent and leases in respect of real
Property of Borrower
========================================================================================================================
</TABLE>
<PAGE>
================================================================================
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Dated as of August 21, 1998
between
PREMIER GRAPHICS, INC.,
as Borrower
THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,
as Lenders,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. AMOUNT AND TERMS OF TERM LOANS AND ACQUISITION LINE................................ 2
1.1 Term Loans................................................................. 2
1.2 Acquisition Line Advances.................................................. 3
1.3 Prepayments................................................................ 4
1.4 Interest................................................................... 5
1.5 Fees....................................................................... 7
1.6 Receipt of Payments........................................................ 8
1.7 Application and Allocation of Payments..................................... 8
1.8 Loan Account and Accounting................................................ 8
1.9 Indemnity.................................................................. 9
1.10 Access..................................................................... 10
1.11 Taxes...................................................................... 10
1.12 Additional Provisions...................................................... 11
1.13 Security Interest in the Collateral........................................ 13
1.14 Rights of Lender, Limitations on Obligations of Lender..................... 14
1.15 Single Loan................................................................ 15
2. CONDITIONS PRECEDENT............................................................... 15
2.1 Conditions to the Term Loan................................................ 15
2.2 Further Conditions to Each Loan............................................ 17
3. REPRESENTATIONS AND WARRANTIES...................................................... 18
3.1 Corporate Existence; Compliance with Law................................... 18
3.2 Executive Offices; Corporate or Other Names; FEIN.......................... 18
3.3 Corporate Power; Authorization; Enforceable Obligations.................... 18
3.4 Financial Statements and Projections....................................... 19
3.5 Material Adverse Change.................................................... 19
3.6 Ownership of Property; Liens............................................... 19
3.7 Restrictions; No Default; Material Contracts............................... 20
3.8 Labor Matters.............................................................. 20
3.9 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.. 20
3.10 Government Regulation...................................................... 21
3.11 Margin Regulations......................................................... 21
3.12 Taxes...................................................................... 21
3.13 ERISA...................................................................... 22
3.14 No Litigation.............................................................. 23
3.15 Brokers.................................................................... 23
3.16 Patents, Trademarks, Copyrights and Licenses............................... 23
3.17 Full Disclosure............................................................ 24
3.18 Hazardous Materials........................................................ 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
3.19 Insurance Policies......................................................... 24
3.20 Deposit and Disbursement Accounts.......................................... 24
3.21 Subordinated Notes......................................................... 25
3.22 Representations and Warranties Regarding the Collateral.................... 25
4. FINANCIAL STATEMENTS AND INFORMATION............................................... 27
4.1 Reports and Notices........................................................ 27
4.2 Communication with Accountants............................................. 27
5. AFFIRMATIVE COVENANTS.............................................................. 27
5.1 Maintenance of Existence and Conduct of Business........................... 27
5.2 Payment of Charges and Claims.............................................. 27
5.3 Books and Records.......................................................... 28
5.4 Litigation................................................................. 28
5.5 Insurance.................................................................. 28
5.6 Compliance with Laws....................................................... 29
5.7 Agreements................................................................. 29
5.8 Supplemental Disclosure.................................................... 30
5.9 Environmental Matters...................................................... 30
5.10 Landlord's and Mortgagee's Agreements...................................... 30
5.11 Certain Obligations Respecting Subsidiaries................................ 30
5.12 Application of Proceeds.................................................... 31
5.13 Fiscal Year................................................................ 31
5.14 Casualty and Condemnation.................................................. 31
5.15 Covenants Regarding the Collateral......................................... 32
5.16 Agent's Appointment as Attorney-in-Fact.................................... 35
5.17 Maintenance Covenant....................................................... 37
5.18 Year 2000 Problems......................................................... 37
5.19 Interest Rate Protection................................................... 38
6. NEGATIVE COVENANTS................................................................. 38
6.1 Mergers, Subsidiaries, Etc................................................. 38
6.2 Investments................................................................ 38
6.3 Indebtedness............................................................... 38
6.4 Affiliate and Employee Loans and Transactions; Employment Agreements....... 38
6.5 Capital Structure and Business............................................. 39
6.6 Guaranteed Indebtedness.................................................... 39
6.7 Liens...................................................................... 39
6.8 Sale of Assets............................................................. 40
6.9 Material Contracts......................................................... 40
6.10 ERISA...................................................................... 40
6.11 Financial Covenants........................................................ 40
6.12 Hazardous Materials........................................................ 41
6.13 Sale-Leasebacks............................................................ 42
6.14 Cancellation of Indebtedness............................................... 42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
6.15 Restricted Payments........................................................ 42
6.16 Real Property Leases....................................................... 42
6.17 Bank Accounts.............................................................. 42
6.18 Subordinated Notes......................................................... 42
6.19 No Speculative Transactions................................................ 43
6.20 Margin Regulations......................................................... 43
6.21 Limitation on Negative Pledge Clauses...................................... 43
6.22 Accounting Changes......................................................... 43
6.23 EBITDA..................................................................... 43
6.24 Fixed Charge Coverage Ratio................................................ 43
6.25 Leverage Ratio............................................................. 44
7. TERM............................................................................... 44
7.1 Duration................................................................... 44
7.2 Survival of Obligations.................................................... 45
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES............................................. 45
8.1 Events of Default.......................................................... 45
8.2 Remedies................................................................... 49
8.3 Grant of License to Use Patent and Trademark Collateral.................... 51
8.4 Waivers by Borrower........................................................ 51
9. SUCCESSOR AND ASSIGNS.............................................................. 51
10. ASSIGNMENTS AND PARTICIPATIONS; APPOINTMENT OF AGENT.............................. 52
10.1 Assignment and Participations.............................................. 52
10.2 Appointment of Agent....................................................... 53
10.3 Agent's Reliance, Etc...................................................... 54
10.4 GE Capital and Affiliates.................................................. 55
10.5 Indemnification............................................................ 55
10.6 Successor Agent............................................................ 55
10.7 Setoff and Sharing of Payments............................................. 56
10.8 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert... 57
11. MISCELLANEOUS..................................................................... 59
11.1 Complete Agreement; Modification of Agreement.............................. 59
11.2 Amendments and Waiver...................................................... 59
11.3 Fees and Expenses.......................................................... 61
11.4 No Waiver.................................................................. 62
11.5 Remedies................................................................... 62
11.6 Severability............................................................... 62
11.7 Conflict of Terms.......................................................... 62
11.8 Right of Set-off........................................................... 62
11.9 Authorized Signature....................................................... 63
11.10 GOVERNING LAW.............................................................. 63
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
11.11 Notices.................................................................... 64
11.12 Section Titles............................................................. 65
11.13 Counterparts............................................................... 65
11.14 Time of the Essence........................................................ 65
11.15 WAIVER OF JURY TRIAL....................................................... 65
11.16 NO ORAL AGREEMENTS......................................................... 66
11.17 Release.................................................................... 66
11.18 Amendment and Restatement.................................................. 66
11.19 References................................................................. 66
</TABLE>
iv
<PAGE>
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of
August 21, 1998, between PREMIER GRAPHICS, INC., a Delaware corporation (the
"Borrower"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
- ---------
(in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent
----------
for Lenders, and the other Lenders signatory hereto from time to time.
RECITALS
A. Borrower and GE Capital, for itself and as agent for certain
participants (in such capacities, "Original Lender") entered into that certain
---------------
Term and CAPEX Loan and Security Agreement dated as of June 19, 1997, as
thereafter amended from time to time, including, without limitation, as amended
by that certain First Amendment to Term and CAPEX Loan and Security Agreement
dated as of September 26, 1997 (as amended, the "Original Agreement").
------------------
B. Borrower and Original Lender amended, restated and modified (but did
not extinguish) the Original Loan Agreement by entering into that certain
Amended and Restated Loan and Security Agreement, dated as of December 16, 1997,
as thereafter amended from time to time, including without limitation, as
amended by (i) that certain First Amendment to Loan and Security Agreement dated
as of March 4, 1998, (ii) that certain Second Amendment to Loan and Security
Agreement dated as of March 31, 1998, (iii) that certain Third Amendment to Loan
and Security Agreement dated as of May 8, 1998, and (iv) that certain Fourth
Amendment to Loan and Security Agreement dated as of June 15, 1998 (as amended,
the "Restated Loan Agreement").
-----------------------
C. Borrower has requested that GE Capital increase the credit facilities
under the Restated Loan Agreement and extend its relationship with Borrower, and
GE Capital is willing to do so upon the terms and conditions set forth herein.
D. In connection with the increase and extension of the relationship
between Borrower and GE Capital and the formation of the relationship between
Borrower and the other Lenders, the parties hereto wish to completely amend,
restate and modify (but not extinguish) the Restated Loan Agreement through the
execution of this Agreement, which will supersede all prior agreements among the
parties hereto.
E. Capitalized terms used herein shall have the meanings ascribed to them
on Annex A. All Schedules, Annexes, Attachments and Exhibits hereto, or
-------
expressly identified to this Agreement, are incorporated herein by reference,
and taken together, shall constitute but a single agreement. Unless otherwise
expressly set forth herein, or in a written amendment referring to such
Schedules and Annexes, all Schedules and Annexes referred to herein shall mean
the Schedules as in effect at the Closing Date. As used herein, the plural
shall include the
<PAGE>
singular, the singular includes the plural, and pronouns in any gender
(masculine, feminine or neuter) all apply to all genders. These Recitals shall
be construed as part of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereto intending to
be legally bound agree as follows:
1. AMOUNT AND TERMS OF TERM LOANS AND ACQUISITION LINE
1.1 Term Loans.
-----------
(a) Subject to the terms and conditions hereof, each Lender agrees to
make (i) a term loan ("Term Loan A") to Borrower on the Closing Date in the
-----------
principal amount of its Term Loan A Commitment; (ii) a term loan ("Term Loan B")
-----------
to Borrower on the Closing Date in the principal amount of its Term Loan B
Commitment, and (iii) a term loan ("Term Loan C") to Borrower on the Closing
-----------
Date in the principal amount of its Term Loan C Commitment (Term Loan A, Term
Loan B and Term Loan C, collectively, the "Term Loan"). The obligations of each
---------
Lender hereunder shall be several and not joint. The Term Loan shall be secured
by all of the Collateral. Borrower may not reborrow any amount repaid with
respect to the Term Loan.
(b) Each Term Loan A made by a Lender shall be evidenced by a single
promissory note executed by Borrower in favor of such Lender substantially in
the form of Exhibit A-1 hereto, dated the date hereof, payable to such Lender in
-----------
a principal amount equal to the amount of such Lender's Term Loan A Commitment
and otherwise duly completed (all such notes, collectively, "Note A"). Each
------
Term Loan B shall be evidenced by a single promissory note executed by Borrower
in favor of such Lender substantially in the form of Exhibit A-2 hereto, dated
-----------
the date hereof, payable to such Lender in a principal amount equal to the sum
of the amount of such Lender's Term Loan B Commitment and otherwise duly
completed (all such notes, collectively, "Note B"). Each Term Loan C made by a
------
Lender shall be evidenced by a single promissory note executed by Borrower in
favor of such Lender substantially in the form of Exhibit A-3 hereto, dated the
-----------
date hereof, payable to such Lender in a principal amount equal to the amount of
such Lender's Term Loan C Commitment and otherwise duly completed (all such
notes, collectively, "Note C"). Each such Note shall represent the obligation
------
of Borrower to pay the amount of the applicable Lender's applicable Term Loan
Commitment to Borrower, together with interest thereon as prescribed in Section
-------
1.4. The date, amount and interest rate of the Term Loan made by each Lender
- ---
and each payment of principal with respect thereto shall be recorded on the
books and records of Agent which books and records shall constitute prima facie
----- -----
evidence of the accuracy of the information therein recorded.
(i) The unpaid principal amount of the Term Loan A shall be repayable
in twenty (20) consecutive quarterly installments on the first day of each
January, April, July and October of each year, commencing October 1, 1998, as
follows:
2
<PAGE>
Payment Date Installment Amount
------------ ------------------
October 1, 1998 $1,120,000
January 1, 1999 $1,120,000
April 1, 1999 $1,120,000
July 1, 1999 $1,120,000
October 1, 1999 $1,260,000
January 1, 2000 $1,260,000
April 1, 2000 $1,260,000
July 1, 2000 $1,260,000
October 1, 2000 $1,400,000
January 1, 2001 $1,400,000
April 1, 2001 $1,400,000
July 1, 2001 $1,400,000
October 1, 2001 $1,540,000
January 1, 2002 $1,540,000
April 1, 2002 $1,540,000
July 1, 2002 $1,540,000
October 1, 2002 $1,680,000
January 1, 2003 $1,680,000
April 1, 2003 $1,680,000
July 1, 2003 $1,680,000
(ii) The unpaid principal amount of the Term Loan B shall be repayable
in a single installment which shall be due on the Termination Date.
(iii) The unpaid principal amount of the Term Loan C shall be
repayable in a single installment which shall be due on the Termination Date.
(iv) Notwithstanding the foregoing clauses (i)-(iii), the aggregate
----------------
outstanding balance of the Term Loan A, the Term Loan B and the Term Loan C
shall each be due and payable in full in immediately available funds on the
Termination Date, if not sooner paid in full.
(v) Each payment of principal with respect to the Term Loan A, the
Term Loan B or the Term Loan C shall be paid to Agent for the ratable benefit of
each Lender making a Term Loan A, a Term Loan B or a Term Loan C, respectively,
ratably in proportion to each such Lender's respective Term Loan A Commitment,
Term Loan B Commitment or Term Loan C Commitment.
(d) The Borrower shall use the proceeds of the Term Loan to refinance
existing indebtedness of the Borrower and finance the general corporate needs of
Borrower.
3
<PAGE>
1.2 Acquisition Line Advances.
--------------------------
(a) Upon and subject to the terms and conditions hereof, each Lender
agrees to make available, from time to time, until August 20, 2003, for
Borrower's use and upon the request of Borrower therefor to Agent, its Pro Rata
Share of advances (each, an "Acquisition Line Advance") to finance Eligible
------------------------
Acquisitions. The Pro Rata Share of the aggregate amount of outstanding
Acquisition Line Advances of any Lender shall not at any time exceed its
separate Acquisition Line Commitment. The obligations of each Lender hereunder
shall be several and not joint. Each Acquisition Line Advance shall be secured
by all of the Collateral. Each Lender's Acquisition Line Commitment shall be
permanently reduced by the amount of each Acquisition Line Advance made by it
hereunder, and Borrower may not reborrow any amount repaid with respect to any
Acquisition Line Advance.
(b) Borrower shall give Agent notice of each borrowing and on the
dates specified for such borrowing, pursuant to Section 10.8, each acquisition
------------
Line Lender shall make available to Agent such Acquisition Line Lender's Pro
Rata Share of the Acquisition Line Advance or Advances to be made on such date
to the Borrower, in immediately available funds. Agent shall notify each other
Lender of the consummation of each Eligible Acquisition financed hereby.
(c) Borrower shall execute and deliver to each Lender a note to
evidence the Acquisition Line Commitment of that Lender. Each such note shall
be in the principal amount of the Acquisition Line Commitment of the applicable
Lender, dated the Closing Date and substantially in the form of Exhibit A-4
-----------
(each, an "Acquisition Line Note" and, collectively, the "Acquisition Line
--------------------- ----------------
Note"). Each Acquisition Line Note shall represent the obligation of Borrower
to pay the amount of each Lender's Acquisition Line Commitment or, if less, the
applicable Lender's Pro Rata Share of the aggregate unpaid Acquisition Line
Advances together with interest thereon as prescribed in Section 1.4. The date,
-----------
amount and interest rate of each Acquisition Line Advance made by each Lender
and each payment of principal with respect thereto shall be recorded on the
books and records of Agent which books and records shall constitute prima facie
----- -----
evidence of the accuracy of the information therein recorded.
(d) The unpaid principal balance of each Acquisition Line Advance
shall be repayable in equal consecutive quarterly installments in an amount
equal to one-fortieth (1/40) of the principal amount of such Acquisition Line
Advance each which shall be due commencing on the first day of the calendar
quarter immediately following the date of such Acquisition Line Advance, and
shall continue to be due on the first day of each calendar quarter thereafter
together with a final installment of principal on each such Acquisition Line
Advance which shall be due on the Termination Date in an amount equal to the
entire remaining unpaid principal balance of all outstanding Acquisition Line
Advances.
1.3 Prepayments.
-----------
(a) General. Any full or partial prepayment of principal on any Term
-------
Loan or any Acquisition Line Advance shall be subject to the following terms and
conditions:
4
<PAGE>
(i) (A) Borrower may, at any time on at least ten (10) days' prior
written notice to Agent voluntarily prepay all or part of the Loans, provided
that (A) any such prepayment shall be in a minimum amount of $500,000 and (B)
any voluntary prepayment in whole or in part of any Loan made prior to the third
anniversary of the Closing Date will obligate Borrower to pay the appropriate
Prepayment Fee and/or Breakage Cost if applicable as provided in Section 1.5,
-----------
and
(B) a prepayment of all or any part of any Loan which constitutes a
LIBOR Loan may be made only on the last day of the Interest Period applicable
thereto and if any such prepayment is made on a day that is not the last day of
the applicable Interest Period, Borrower shall be obligated to pay to the
Lenders any additional amounts due under Section 1.12 hereof; and
------------
(ii) Any partial prepayment of the Loans (whether voluntary or
mandatory) shall be applied to installments of principal due thereon among Note
A, Note B, Note C and the Acquisition Line Notes in proportion to the relative
principal amounts of Loans outstanding under each in their inverse order of
maturity.
(b) Mandatory Repayments.
--------------------
(i) Borrower shall prepay the Term Loan and/or the Acquisition Line
Advances in amounts equal to fifty percent (50%) of Borrower's Excess Cash Flow
with respect to each Fiscal Year of Borrower during the term hereof, such
prepayments to be made within five (5) Business Days following the due date for
delivery by Borrower to Agent of the annual financial statements required by
Section 4.1 hereof and each such prepayment shall be applied to the installments
- -----------
of principal due under Note A, Note B, Note C and the Acquisition Line Notes
(allocated among Note A, Note B, Note C and the Acquisition Line Notes in
proportion to the relative principal amounts of Loans outstanding under each) in
the inverse order of their respective maturities until payment thereof in full.
(ii) Immediately upon receipt by any Loan Party of Net Proceeds of any
asset disposition (which shall include, without limitation, any sale of assets
or properties or any loss, destruction or condemnation thereof, except as
otherwise provided in Section 5.5) or any sale of Stock or debt securities of
-----------
any Subsidiary or Loan Party, Borrower shall prepay the Loans as and when
received by Borrower as a mandatory prepayment of the Loans an amount equal to
the greater of (x) the Net Proceeds received by Borrower from such sale or
disposition or (y) the depreciated value of such assets or properties according
to Agent's internal analysis. Each such prepayment shall be applied to the
installments of principal due under Note A, Note B, Note C and the Acquisition
Line Notes (allocated among Note A, Note B, Note C and the Acquisition Line
Notes in proportion to the relative principal amounts of Loans outstanding under
each) in the inverse order of their respective maturities until payment thereof
in full.
5
<PAGE>
1.4 Interest.
--------
(a) Borrower shall pay interest on the Loans to Agent, for the ratable
benefit of Lenders in accordance with the various Loans being made by each
Lender, in arrears on the first (1st) day of each calendar month, commencing
with the calendar month following the calendar month in which the Closing Date
occurs, and continuing to be due on the first (1st) day of each succeeding
calendar month thereafter; provided, however, that (i) accrued interest on any
--------
LIBOR Loan shall be payable by Borrower to Agent, for the ratable benefit of
Lenders in accordance with the various Loans being made by each Lender, in
arrears on the last day of the Interest Period applicable thereto and (ii) in
all cases accrued and unpaid interest on the Term Loan and all of the
Acquisition Line Advances shall be payable by Borrower to Agent, for the ratable
benefit of Lenders in accordance with the various Loans being made by each
Lender, on the Termination Date. If any interest on the Term Loan or any of the
Acquisition Line Advances accrues or remains payable after the Termination Date,
such interest shall be payable by Borrower upon demand.
(b) Borrower shall be obligated to pay interest to Agent, for the
ratable benefit of Lenders in accordance with the various Loans being made by
each Lender, on the outstanding principal balance of each Loan from the date
such Loan is made until such Loan is repaid in full, with respect to each Loan,
at a floating rate equal, to the sum of the Adjusted LIBOR for the applicable
Interest Period, plus the Applicable Margin therefor (each such Loan bearing
----
interest based upon the Adjusted LIBOR is hereinafter referred to as a "LIBOR
-----
Loan"); provided, however, that (A) no Interest Period may extend beyond the
- ---- --------
Termination Date, and (B) any prepayment of a LIBOR Loan may be made by Borrower
only on the last day of the Interest Period applicable thereto and if any such
prepayment is made on a day that is not the last day of the applicable Interest
Period, Borrower shall pay to Agent, for the ratable benefit of Lenders in
accordance with the various Loans being made by each Lender, any additional
amount due under Section 1.12 below. Upon determining the Adjusted LIBOR for an
------------
Interest Period requested by Borrower, the Agent shall promptly notify Borrower
of such determination, and such determination shall, in the absence of manifest
error, be final, conclusive and binding for all purposes hereunder.
(c) All computations of interest hereunder or under the other Loan
Documents shall be made by Agent on the basis of a three hundred and sixty (360)
day year, in each case for the actual number of days occurring in the period for
which such interest is payable. Each determination by Agent of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(d) So long as any Event of Default shall have occurred and be
continuing, the interest rate applicable to the Loans or other Obligations shall
be increased by two percentage points (2%) per annum above the then highest rate
otherwise applicable to the Loans (the "Default Rate"), payable on demand of
------------
Agent.
(e) Notwithstanding anything to the contrary set forth in this Section
-------
1.4, if, at any time until payment in full of all of the Obligations, the rate
- ---
of interest payable hereunder by
6
<PAGE>
Borrower exceeds the highest rate of interest permissible under any law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto (the "Maximum Lawful Rate"), then in such event and so long
-------------------
as the Maximum Lawful Rate would be so exceeded, the rate of interest payable
hereunder by Borrower shall be equal to the Maximum Lawful Rate; provided,
--------
however, that if at any time thereafter the rate of interest payable by
Borrower hereunder is less than the Maximum Lawful Rate, Borrower shall
continue to pay interest hereunder at the Maximum Lawful Rate until such time as
the total interest received by Agent, on behalf of Lenders, from the making of
advances hereunder to Borrower is equal to the total interest which would have
been received had the interest rate payable hereunder by Borrower been (but for
the operation of this paragraph) the interest rate payable since the Closing
Date as otherwise provided in this Agreement. Thereafter, the interest rate
payable by Borrower hereunder shall be the rate of interest otherwise provided
in this Section 1.4, unless and until the rate of interest again exceeds the
-----------
Maximum Lawful Rate, in which event this paragraph shall again apply. In no
event shall the total interest received by any Lender pursuant to the terms of
this Agreement or any other Loan Document exceed the amount which such Lender
could lawfully have received had the interest due hereunder been calculated for
the full term hereof or thereof at the Maximum Lawful Rate. All interest paid
by, charged to or collected from Borrower hereunder or under any other Loan
Document shall, to the maximum extent permitted by applicable law, be amortized,
allocated and spread throughout the full term of the Obligation on which it
accrued. In the event the Maximum Lawful Rate is calculated pursuant to this
paragraph, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. In the event that a court of competent jurisdiction,
notwithstanding the provisions of this Section 1.4(e), shall make a final
--------------
determination that a Lender has received interest hereunder or under any of the
Loan Documents from Borrower in excess of the Maximum Lawful Rate, Agent shall,
to the extent permitted by applicable law, promptly apply such excess first to
any interest due from Borrower and not yet paid hereunder, then to the
outstanding principal of the Obligations of Borrower, then to Fees and any other
unpaid Obligations owed by Borrower and thereafter shall refund any excess to
Borrower or as a court of competent jurisdiction may otherwise order.
1.5 Fees.
----
(a) Borrower shall pay to GE Capital, individually, the Fees specified
in the Fee Letter, at the times specified for payment therein.
(b) If Borrower prepays all or any portion of a LIBOR Loan, Borrower
shall pay a breakage fee (the "Breakage Cost") payable to Agent for the benefit
-------------
of the affected Lenders, in an amount equal to the present value of all
remaining scheduled interest payments on the Loan prepaid. For purposes of this
paragraph, the present value of each scheduled interest payment shall be
determined by discounting such scheduled interest payment to the date the
prepayment is made at the Prepayment Treasury Rate (hereinafter defined) in
effect on the date such prepayment is made plus fifty (50) basis points. The
term "Prepayment Treasury Rate", as used in this paragraph, means with respect
to each scheduled interest payment, the yield which shall be imputed, by linear
interpolation, from the current weekly yields of those United States Treasury
Notes having maturities as close as practicable to the date of the prepayment of
the
7
<PAGE>
Term Loan, as published in the most recent Federal Reserve Statistical Release
H.15 (519) or any successor publication thereto. The Breakage Cost for any
partial prepayments shall be determined in the same manner as provided above,
but such principal so prepaid shall, notwithstanding anything to the contrary
contained herein, be deemed (for purposes of calculating the Breakage Cost)
applied to the principal payments in inverse order of maturity.
1.6 Receipt of Payments. Borrower shall make each payment under this
-------------------
Agreement not later than 11:00 a.m. (New York time) on the day when due in
lawful money of the United States of America in immediately available funds to
the Collection Account. For purposes of computing interest and fees (a) all
payments (including cash sweeps) consisting of cash, wire, or electronic
transfers in immediately available funds shall be deemed received on the day of
deposit in the Collection Account prior to 11:00 a.m. (New York time) and notice
to Agent of such deposit and (b) all payments consisting of checks, drafts, or
similar non-cash items shall be deemed received upon receipt of good funds
following deposit in the Collection Account (together with notice to Agent of
such deposit).
1.7 Application and Allocation of Payments. All payments and prepayments
--------------------------------------
applied to a particular Loan shall be applied ratably to the portion thereof
held by each Lender as determined by its Pro Rata Share of such Loan. Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times hereafter received from or on behalf of Borrower, and
Borrower irrevocably agrees that Agent shall have the continuing exclusive right
to apply (subject to any agreement among any of the Lenders and acknowledged by
Agent that modifies the order or right of payment of any of the Loans) any and
all such payments against the then due and payable Obligations of Borrower and
(to the extent there are no then due and payable Obligations) in repayment of
the Term Loan and the Acquisition Line Advances as Agent may deem advisable
notwithstanding any previous entry by Agent in the Loan Account or any other
books and records. In the absence of a specific determination by Agent with
respect thereto, the same shall be applied in the following order: (i) then due
and payable Fees, expenses and other Obligations owing to the Agent; (ii) then
due and payable Fees and expenses of the Lenders; (iii) then due and payable
interest payments on Note A, Note B, Note C and the Acquisition Line Note, on a
pari passu basis (unless otherwise specified in any agreement among any of the
Lenders and acknowledged by Agent); (iv) Obligations to the Lenders other than
Fees, expenses and interest and principal payments; and (v) then due and payable
principal payments on Note A, Note B, Note C and the Acquisition Line Note, on a
pari passu basis (unless otherwise specified in any agreement among any of the
Lenders and acknowledged by Agent).
1.8 Loan Account and Accounting. Agent shall maintain a loan account (the
---------------------------
"Loan Account") on its books to record: all Acquisition Line Advances and the
------------
Term Loan, all payments made by Borrower, and all other debits and credits as
provided in this Agreement with respect to the Loans or any other Obligations.
All entries in the Loan Account shall be made in accordance with Agent's
customary accounting practices as in effect from time to time. The balance in
the Loan Account, as recorded on Agent's most recent printout or other written
statement, shall, absent manifest error, be presumptive evidence of the amounts
due and owing to Agent and Lenders by Borrower; provided that any failure to so
--------
record or any error in so recording shall not limit or otherwise affect any
Borrower's duty to pay the Obligations. Agent
8
<PAGE>
shall render to Borrower a monthly accounting of transactions with respect to
the Loans setting forth the balance of the Loan Account. Unless Borrower
notifies Agent in writing of any objection to any such accounting (specifically
describing the basis for such objection), within thirty (30) days after the date
thereof, each and every such accounting shall (absent manifest error) be deemed
final, binding and conclusive upon Borrower in all respects as to all matters
reflected therein. Only those items expressly objected to in such notice shall
be deemed to be disputed by Borrower. Agent's determination, based upon the
facts available, of any disputed item shall (absent manifest error) be final,
binding and conclusive on Borrower. Notwithstanding any provision herein
contained to the contrary, any Lender may elect (which election may be revoked)
to dispense with the issuance of Notes to that Lender and may rely on the Loan
Account as evidence of the amount of Obligations from time to time owing to it.
1.9 Indemnity.
---------
(a) BORROWER SHALL INDEMNIFY AND HOLD EACH OF AGENT, LENDERS AND THEIR
RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS
(EACH, AN "INDEMNIFIED PERSON"), HARMLESS FROM AND AGAINST ANY AND ALL SUITS,
------------------
ACTIONS, COSTS, FINES, DEFICIENCIES, PENALTIES, PROCEEDINGS, CLAIMS, DAMAGES,
LOSSES, LIABILITIES AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES AND
DISBURSEMENTS AND OTHER COSTS OF INVESTIGATIONS OR DEFENSE, INCLUDING THOSE
INCURRED UPON ANY APPEAL) (EACH, A "CLAIM") WHICH MAY BE INSTITUTED OR ASSERTED
-----
AGAINST OR INCURRED BY SUCH INDEMNIFIED PERSON AS THE RESULT OF CREDIT HAVING
BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THEREUNDER, INCLUDING ANY AND ALL ENVIRONMENTAL LIABILITIES AND
COSTS, PROVIDED, THAT BORROWER SHALL NOT BE LIABLE FOR ANY INDEMNIFICATION TO
--------
SUCH INDEMNIFIED PERSON WITH RESPECT TO ANY PORTION OF ANY SUCH CLAIM WHICH
RESULTS SOLELY FROM SUCH INDEMNIFIED PERSON'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT AS DETERMINED BY A FINAL JUDGMENT OF A COURT OF COMPETENT
JURISDICTION. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER
PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON
OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THE LOAN
DOCUMENTS OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
(b) In any suit proceeding or action brought by the Lender relating to
any Account, Chattel Paper, Contract, General Intangible, Instrument, Equipment
or Document for any sum owing thereunder, or to enforce any provision of any
Account, Chattel Paper, Contract, General Intangible, Instrument or Document,
Borrower shall save, indemnify and keep Agent and
9
<PAGE>
Lenders harmless from and against all expense, loss or damage suffered by reason
of any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder arising out of a breach by Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from Borrower, all such obligations of Borrower shall be and remain enforceable
against, and only against, Borrower and shall not be enforceable against Agent
or any Lender.
(c) Borrower hereby acknowledges and agrees that neither Agent nor any
Lender (as of the date hereof) (i) is now or ever has been in control of any of
the Subject Property or the affairs of any Loan Party, and (ii) has the capacity
through the provisions of the Loan Documents to influence conduct with respect
to the ownership, operation or management of any of the Subject Property.
1.10 Access. Borrower shall, and shall cause each of its Subsidiaries to:
------
(i) provide access during normal business hours to Agent and any of its
officers, employees and agents, as frequently as Agent determines to be
appropriate, upon reasonable advance notice (unless a Default shall have
occurred and be continuing, in which event no notice shall be required and Agent
shall have access at any and all times), to the properties, facilities and
managers (whom Borrower shall instruct and authorize to cooperate with and
provide requested information to Agent) of Borrower or any of its Subsidiaries;
(ii) permit Agent and any of its officers, employees and agents to inspect,
audit and make extracts from all of Borrower's records, files and books of
account; and (iii) permit Agent, to conduct audits to inspect, review and
evaluate the Collateral, and Borrower agrees to render to Agent at Borrower's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. If a Default or Event of Default shall have
occurred and be continuing or if access is necessary to preserve or protect the
Collateral as determined by Agent, Borrower shall provide such access to Agent
and to each Lender at all times and without advance notice. Furthermore, so
long as any Event of Default shall have occurred and be continuing, Borrower
shall provide Agent and each Lender with access to their suppliers and
customers. Borrower shall, and shall cause each of its Subsidiaries to, make
available to Agent and its counsel, as quickly as practicable under the
circumstances, originals or copies of all books, records, board minutes,
contracts, insurance policies, environmental audits, business plans, files,
financial statements (actual and pro forma), filings with federal, state and
local regulatory agencies, and other instruments and documents which Agent may
request. Borrower shall deliver any document or instrument reasonably necessary
for Agent, as it may from time to time request, to obtain records from any
service bureau or other Person which maintains records for Borrower, and shall
maintain duplicate records or supporting documentation on media, including,
without limitation, computer tapes and discs owned by Borrower. Borrower shall
instruct its certified public accountants and its banking and other financial
institutions to make available to Agent such information and records as Agent
may reasonably request. Agent will give Lenders at least ten (10) days' prior
written notice of regularly scheduled audits. Representatives of other Lenders
may accompany Agent's representatives on regularly scheduled audits at no charge
to Borrower.
10
<PAGE>
1.11 Taxes.
-----
(a) Any and all payments by or on behalf of Borrower hereunder or
under the Notes, or any other Loan Document, shall be made, in accordance with
this Section 1.11, free and clear of and without deduction for any and all
------------
present or future Taxes. If Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Note or any
other Loan Document to the Lender, (i) the sum payable shall be increased as may
be necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 1.11) Agent or Lenders,
------------
as applicable, receive an amount equal to the sum they would have received had
no such deductions been made, (ii) Borrower shall make such deductions, and
(iii) Borrower shall pay the full amount deducted to the relevant taxing or
other authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as "Other Taxes").
-----------
(c) Borrower shall indemnify and pay, within ten (10) days of demand
therefor, Agent and each Lender for the full amount of Taxes or Other Taxes
(including without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 1.11) paid by Agent or such
------------
Lender, as appropriate, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted.
(d) Within thirty (30) days after the date of any such payment of
Taxes or Other Taxes, Borrower shall furnish to Agent, at its address referred
to in Section 11.11, the original or a certified copy of a receipt evidencing
-------------
payment thereof.
(e) If Agent or any Lender subsequently receives from a taxing
authority a refund of any Tax or Other Tax previously paid by Borrower and for
which Borrower has indemnified Agent or any Lender pursuant to this Section
-------
1.11, Agent or such Lender, as applicable, shall within thirty (30) days after
- ----
receipt of such refund, and to the extent permitted by applicable law, pay to
Borrower the net amount of any such refund after deducting taxes and expenses
attributable thereto.
(f) Each Lender organized under the laws of a jurisdiction outside the
United States (a "Foreign Lender") as to which payments to be made under this
--------------
Agreement or under the Notes are exempt from United States withholding tax under
an applicable statute or tax treaty shall provide to Borrower and Agent a
properly completed and executed IRS Form 4224 or Form 1001 or other applicable
form, certificate or document prescribed by the IRS or the United States
certifying as to such Foreign Lender's entitlement to such exemption (a
"Certificate of Exemption"). Any foreign Person that seeks to become a Lender
- -------------------------
under this Agreement shall provide a Certificate of Exemption to Borrower and
Agent prior to becoming a Lender
11
<PAGE>
hereunder. No foreign Person may become a Lender hereunder if such Person is
unable to deliver a Certificate of Exemption.
1.12 Additional Provisions.
---------------------
(a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the Closing Date, from any
central bank or other Governmental Authority increases or would have the effect
of increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by such Lender (with a copy of such demand
to Agent) pay to Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction. A certificate as to
the requirement that reduces the rate of return, the amount of that reduction
and showing in reasonable detail the basis of the computation thereof submitted
by such Lender to Borrower and to Agent shall, absent manifest error, be final,
conclusive and binding for all purposes.
(b) If, due to either (i) the introduction of or any change in any law
or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force or law), in each case
adopted after the Closing Date, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to Agent), pay to Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the law, regulation or request that results in such increased
cost, the amount of such increased cost and showing in reasonable detail the
basis of the computation thereof, submitted to Borrower and to Agent by such
Lender, shall be conclusive and binding on Borrower for all purposes, absent
manifest error. Each Lender agrees that, as promptly as practicable after it
becomes aware of any circumstances referred to above which would result in any
such increased cost, the affected Lender shall, to the extent not inconsistent
with such Lender's internal policies of general application, use reasonable
commercial efforts to minimize costs and expenses incurred by it and payable to
it by Borrower pursuant to this Section 1.12(b).
---------------
(c) Notwithstanding anything to contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make
12
<PAGE>
or to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower
shall forthwith prepay in full all outstanding LIBOR Loans owing by Borrower to
such Lender, together with interest accrued thereon, unless Borrower, within
------
five (5) Business Days after the delivery of such notice and demand, converts
all such Loans into a Loan bearing interest based on the Base Rate.
(d) In order to induce each Lender to fund and maintain its share of
any LIBOR Loan on the terms provided herein, and in consideration of each
Lender's entering into funding arrangements from time to time in contemplation
thereof, Borrower agrees that if any LIBOR Loan is repaid or prepaid in full or
in part on any day other than the last day of the Interest Period therefor (if
such repayment or prepayment is voluntarily made by Borrower), Borrower shall
pay to any Lender, upon the request of such Lender, such amount or amounts as
shall compensate such Lender for any loss, cost or expense incurred by such
Lender (as determined by such Lender in its sole judgment) by reason of the
liquidation or re-employment of funds acquired or committed to be acquired by
such Lender to fund or maintain its share of such LIBOR Loan, pursuant to such
Lender's customary funding arrangements. The amount of any such loss or expense
shall include the excess, if any, of (i) such Lender's cost or deemed cost of
obtaining funding for the amount necessary to fund or maintain its share of such
LIBOR Loan for the Interest Period applicable thereto over (ii) the return such
Lender will receive on its re-employment of such funds, each as determined by
such Lender in its sole judgment. Without limiting the generality of the
foregoing, such Lender may compute such loss or expense on the basis of such
funds having been borrowed by such Lender at a rate equal to the interest rate
on United States Treasury bills or notes with a maturity that most closely
approximates the end of the relevant Interest Period as quoted by Telerate News
Service (page 5) at the close of business on the first (1st) day of the Interest
Period in respect of such LIBOR Loan, and on the reinvestment by such Lender of
such funds in United States Treasury bills or notes with a maturity that most
closely approximates the end of the relevant Interest Period as quoted by
Telerate News Service (page 5) at the close of business on the date of repayment
or prepayment of such LIBOR Loan (or as such United States Treasury bill or note
rates are quoted by such other nationally-recognized quote service as may be
specified by Agent to the Borrower from time to time). Each such request shall
be accompanied by a certificate of the requesting Lender setting forth in
reasonable detail the basis for computing the amount of such loss or expense,
and each such certificate shall, in the absence of manifest error, be
conclusive.
(e) The calculation of all amounts payable under this Agreement with
respect to any LIBOR Loan shall be made as though each Lender had actually
funded its share of such LIBOR Loan through the purchase of deposits in the
relevant market and in an amount equal to the amount of its share of such LIBOR
Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such loan from an offshore office of such Lender to a
domestic office of such Lender in the United States of America; provided,
--------
however, that each Lender may fund its share of each of the LIBOR Loans in any
manner it sees fit and the foregoing assumptions shall be used only for
calculation of amounts which may be payable by Borrower under this Agreement
with respect thereto.
13
<PAGE>
1.13 Security Interest in the Collateral.
-----------------------------------
(a) To secure the prompt and complete payment, performance and
observance of all of the Obligations, and to induce Agent and Lenders to enter
into this Agreement and to make the Term Loan and the Acquisition Line Advances
available to the Borrower, Borrower hereby grants to Agent, for itself and
Lenders, a security interest in all of Borrower's right, title and interest in,
to and under the following, whether now owned by or owing to, or hereafter
acquired by or arising in favor of Borrower (including, without limitation,
under any trade names, styles or divisions thereof), and whether owned, leased
or consigned by or to Borrower, and regardless of where located:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Inventory;
(viii) all Equipment;
(ix) all Intellectual Property;
(x) all Investment Property;
(xi) all money, cash or any Cash Equivalents of Borrower;
(xii) all other Goods and interests in property of any kind,
nature or description whatsoever, whether tangible or intangible, whether real
or personal, and whether now or hereafter owned or existing, leased, consigned
by or to, or acquired by, Borrower and wherever located; and
(xiii) to the extent not otherwise included, all Proceeds of
any of the foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of, each of the foregoing.
(b) In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Lenders as
aforesaid, Borrower hereby grants to Agent, for itself and Lenders, a security
interest in all property of Borrower held by
14
<PAGE>
Agent including, without limitation, all property of every description now or
hereafter in the possession or custody of, or in transit to Agent for any
purpose, including safekeeping, collection or pledge, for the account of
Borrower, or as to which Borrower may have any right or power.
1.14. Rights of Lender, Limitations on Obligations of Lender.
------------------------------------------------------
(a) It is expressly agreed by Borrower that, anything herein to the
contrary notwithstanding, Borrower shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Agent shall have
no obligation or liability under any Contract or License by reason of or arising
out of this Agreement or the granting herein of a security interest herein or
the receipt by Agent of any payment relating to any Contract or License pursuant
hereto, nor shall Agent be required or obligated in any manner to perform or
fulfill any of the obligations of Borrower under or pursuant to any Contract or
License, or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it or the sufficiency of any performance
by any party under any Contract or License, or to present or file any claim, or
to take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
(b) Upon repayment of all obligations to Revolving Lender and
termination of the Revolving Credit Facility, Agent may after the occurrence and
during the continuation of any Event of Default and without prior notice to
Borrower, notify Account Debtors, parties to the Contracts, and obligors in
respect of Instruments that the Accounts and the right, title and interest of
Borrower in and under such Contracts and Instruments have been assigned to
Agent, for itself and Lenders, and that payments shall be made directly to
Agent. Upon the request of Agent, Borrower shall so notify such Account
Debtors, parties to Contracts, and obligors in respect of Instruments. Upon
repayment of all obligations to Revolving Lender and termination of the
Revolving Credit Facility, Agent may notify Account Debtors in respect of
Chattel Paper that the right, title and interest of Borrower in and under such
Chattel Paper have been assigned to Agent, for itself and Lenders, and that
payments shall be made directly to Agent.
(c) Agent shall have the right from time to time to make test
verifications of the Accounts and physical verifications and appraisals of the
Inventory and other Collateral in any manner and through any medium that it
considers advisable, and Borrower agrees to furnish all such assistance and
information as Agent may require in connection therewith. Agent may at any time
in Agent's own name or in the name of Borrower communicate with Account Debtors,
parties to Contracts and obligors in respect of Instruments to verify with such
Persons, to Agent's satisfaction, the existence, amount and terms of any
Accounts, Contracts, Instruments or Chattel Paper. Upon the occurrence and
continuation of any Event of Default, Borrower, at its own expense, shall cause
the certified independent public accountant then engaged by Borrower, to prepare
and deliver to Agent at any time and from time to time promptly upon Agent's
request the following reports: (i) a reconciliation of all Accounts; (ii) an
aging of all Accounts; (iii) trial balances; and (iv) a test verification of
such Accounts as Agent may request. Borrower, at its own expense, shall cause
its certified independent public accountants to deliver to Agent the
15
<PAGE>
results of any physical verification of all or any portion of its Inventory made
or observed by such accountants when and if such verification is conducted.
1.15 Single Loan. All Loans to each Borrower and all of the other
-----------
Obligations of each Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of that Borrower secured,
until the Termination Date, by all of its Collateral.
2. CONDITIONS PRECEDENT
2.1 Conditions to the Term Loan. Notwithstanding any other provision of
---------------------------
this Agreement and without affecting in any manner the rights of Agent and
Lenders hereunder, Borrower shall have no rights under this Agreement (but shall
have all applicable obligations hereunder), and Lenders shall not be obligated
to advance the Term Loan, make any Acquisition Line Advance or to take, fulfill,
or perform any other action hereunder, until the following conditions have been
fulfilled to the satisfaction of Agent:
(a) This Agreement or counterparts hereof shall have been duly
executed by, and delivered to, Borrower, Agent and Lenders.
(b) Agent shall have received all the Loan Documents and such other
documents, instruments, certificates, opinions and agreements as Agent shall
request in connection with the transactions contemplated by this Agreement,
including without limitation all documents, instruments, agreements and other
materials listed in the Schedule of Documents each in form and substance
satisfactory to Agent.
(c) Agent shall have received evidence satisfactory to Agent that
Borrower has obtained consents and acknowledgments of all Persons whose consents
and acknowledgments may be required, including, but not limited to, all
requisite Governmental Authorities, to the terms and to the execution and
delivery, of this Agreement and the other Loan Documents and the consummation of
the transactions contemplated hereby and thereby.
(d) Agent shall have received evidence satisfactory to it that the
insurance policies provided for in Section 5.5 and Annex D are in full force and
----------- -------
effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements, as appropriate, in favor of Agent,
for itself and Lenders, and in form and substance satisfactory to Agent.
(e) Borrower shall have paid all Fees, costs, and expenses of closing
(including fees and expenses of consultants and counsel to Agent and Lenders
presented as of the Closing Date).
(f) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or any of the other Loan Documents or the consummation of the
16
<PAGE>
transactions contemplated hereby and thereby and which, in Agent's sole
judgment, would make it inadvisable to consummate the transactions contemplated
by this Agreement or any of the other Loan Documents.
(g) Agent, in its sole judgment, shall not have determined that (i)
Borrower shall have made any Restricted Payment; (ii) any material increase in
liabilities, liquidated or contingent, of Borrower or Holdings, or material
decrease in the assets of Borrower or Holdings, shall have occurred since their
respective last audited financial statements; (iii) any Material Adverse Effect
shall have occurred since Borrower's last certified and audited financial
statements; (iv) any material adverse effect on the industry of Borrower shall
have occurred; or (v) any change in loan syndication, financial or capital
markets conditions generally that would materially impair the ability of Agent
to syndicate the Loans.
(h) There exists no default or event of default under any of the
Subordinated Notes.
(i) Agent shall be satisfied, in its sole judgment, with the
corporate, capital, tax, legal and management structure of each Loan Party, and
shall be satisfied, in its sole judgment exercised reasonably, with the nature
and status of all contractual obligations, securities, labor, tax, ERISA,
employee benefit, environmental, health and safety matters, in each case,
involving or affecting any Loan Party.
(j) Agent shall have received evidence satisfactory to it that the
Revolving Credit Facility is in full force and effect and shall have determined
that immediately after giving effect to any reduction of principal outstanding
under the Revolving Credit Facility, but without giving effect to the borrowing
limits thereunder, the available funds under the Revolving Credit Facility
(computed on the basis of all of the Borrower's current debts, obligations and
accounts payable having been paid in due course) shall not be less than
$15,000,000.
(k) Agent shall be satisfied that the merger of Phillips with and into
Borrower shall have been consummated on terms and pursuant to documents in form
and substance satisfactory to Agent.
2.2 Further Conditions to each Loan. It shall be a further condition to
-------------------------------
the funding of the initial Loans and each subsequent Acquisition Line Advance,
and to the continuation of any Loan as a LIBOR Loan, that the following
statements shall be true on the date of each such funding or continuation, as
the case may be:
(a) Each Loan Party's representations and warranties contained herein
or in any of the Loan Documents shall be true and correct on and as of such date
and the Closing Date as though made on or incurred on and as of such date,
except to the extent that any such representation or warranty expressly relates
to an earlier date and except for changes therein permitted or contemplated by
this Agreement.
17
<PAGE>
(b) No event shall have occurred and be continuing, or would result
from such funding or continuation, which constitutes a Default.
(c) No event or circumstance having a Material Adverse Effect shall
have occurred since the date hereof.
(d) With respect to each Acquisition Line Advance, Agent, in its sole
discretion, shall have determined that the proposed acquisition constitutes an
Eligible Acquisition and Agent shall have received all documents, instruments,
certificates and agreements, and evidence of all such matters, as Agent or any
Lender shall request in connection with the applicable Eligible Acquisition; and
Agent and Agent's counsel shall have conducted all such due diligence reviews,
audits and investigations as they shall deem necessary or appropriate in
connection therewith and Agent shall be satisfied, in its sole discretion, with
all of the foregoing.
The request and acceptance by Borrower of the proceeds of any Acquisition Line
Advance or the continuation of any Loan into, or as, a LIBOR Loan, as the case
may be, shall be deemed to constitute, as of the date of such request or
acceptance, (i) a representation and warranty by Borrower that the conditions in
this Section 2.2 have been satisfied and (ii) a confirmation by Borrower of the
-----------
granting and continuance of the Agent's Liens pursuant to the Collateral
Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Agent and Lenders to enter into this Agreement and to make the
Loans, Borrower represents and warrants to Agent and each Lender (each and all
of which representations and warranties shall survive the execution and delivery
of this Agreement) that:
3.1 Corporate Existence; Compliance with Law. Each Loan Party (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified to do business
and is in good standing in each other jurisdiction where its ownership or lease
of property or the conduct of its business requires such qualification; (ii) has
the requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore and
proposed to be conducted; (iii) has all licenses, permits, consents or approvals
from or by, and has made all filings with, and has given all notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct; (iv) is in compliance with its certificate or
articles of incorporation and by-laws; and (v) is in compliance in all material
respects with all applicable provisions of law.
3.2 Executive Offices; Corporate or Other Names; FEIN. The current
-------------------------------------------------
locations of each Loan Party's executive offices and principal place of business
is set forth in Schedule 3.2, and, except as set forth on Schedule 3.2, such
------------ ------------
location has not changed during the preceding twelve months. During the prior
five (5) years, except as set forth on Schedule 3.2, no Loan
------------
18
<PAGE>
Party has been known as or used any corporate, fictitious or trade name other
than the names of the Loan Parties set forth on Schedule 3.2. In addition,
------------
Schedule 3.2 lists the federal employer identification number of each Loan
- ------------
Party.
3.3 Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by each Loan Party of the Loan Documents and
all other instruments and documents to be delivered by such Loan Party hereunder
and thereunder to the extent it is a party thereto and the creation of all Liens
provided for herein and therein: (i) are within such Loan Party's corporate
power; (ii) have been duly authorized by all necessary corporate and shareholder
action; (iii) are not in contravention of any provision of such Loan Party's
certificates or articles of incorporation or by-laws or other organizational
documents; (iv) will not violate any law or regulation, or any order or decree
of any court or governmental instrumentality; (v) will not conflict with or
result in the breach or termination of, constitute a default under or accelerate
any performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which any Loan Party is a party or by which any
Loan Party or any of its property is bound; (vi) will not result in the creation
or imposition of any Lien upon any of the property of any Loan Party other than
those in favor of Agent, on behalf of itself and Lenders, all pursuant to the
Loan Documents; and (vii) do not require the consent or approval of any
Governmental Authority or any other Person, except those referred to in Section
-------
2.1(c), all of which will have been duly obtained, made or complied with prior
- ------
to the Closing Date and which are in full force and effect. At or prior to the
Closing Date, each of the Loan Documents shall have been duly executed and
delivered for the benefit of or on behalf of each Loan Party which is a party
thereto and each shall then constitute a legal, valid and binding obligation of
such Loan Party to the extent it is a party thereto, enforceable against such
Loan Party in accordance with its terms.
3.4 Financial Statements and Projections. Borrower has delivered the
------------------------------------
financial statements and Projections identified on Schedule 3.4, and each such
------------
financial statement and Projection complies with the description thereof
contained on Schedule 3.4.
------------
3.5 Material Adverse Change. As of the date hereof, no Loan Party has any
-----------------------
material obligations, contingent liabilities, or liabilities for Charges, long-
term leases or unusual forward or long-term commitments which are not reflected
in the audited consolidated December 31, 1997 balance sheet of Holdings. As of
the date hereof, there has been no material deviation from the Projections
provided to Agent. Except as otherwise permitted hereunder or as set forth on
Schedule 3.5, no dividends, advances or other distributions have been declared,
- ------------
paid or made upon any Stock of Borrower and, since December 31, 1997, no shares
of Stock of Borrower have been, or are now required to be, redeemed, retired,
purchased or otherwise acquired for value by Borrower. Since December 31, 1997,
no event has occurred which would result in a Material Adverse Effect.
3.6 Ownership of Property; Liens. Except as described on Schedule 3.6,
---------------------------- ------------
the real estate listed on Schedule 3.6 constitutes all of the real property
------------
owned, leased, or used in its business by the Loan Parties. Each Loan Party
holds (i) good and marketable fee simple title to all of its real estate
described on
19
<PAGE>
Schedule 3.6, (ii) valid and marketable leasehold interests in all of such Loan
- ------------
Party's Leases (both as lessor and lessee, sublessee or assignee) described on
Schedule 3.6 and (iii) good and marketable title to, or valid leasehold
- ------------
interests in, all of its other properties and assets. None of the properties and
assets of any Loan Party are subject to any Liens, except (x) Permitted
Encumbrances and Liens set forth on Schedule 6.7 and (y) from and after the
------------
Closing Date, the Lien in favor of Agent, on behalf of itself and Lenders,
pursuant to the Collateral Documents. Each Loan Party has received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and duly effected all recordings,
filings and other actions necessary to establish, protect and perfect such Loan
Party's right, title and interest in and to all such real estate and other
assets or property. Except as described on Schedule 3.6, (i) no Loan Party or,
------------
to Borrower's Knowledge, any other party to any such Lease described on Schedule
--------
3.6 is in default of its obligations thereunder or has delivered or received any
- ---
notice of default under any such Lease, and no event has occurred which, with
the giving of notice, the passage of time, or both, would constitute a default
under any such Lease; no Loan Party owns or holds, or is obligated under or a
party to, any option, right of first refusal or any other contractual right to
purchase, acquire, sell, assign or dispose of any real property owned or leased
by such Loan Party except as set forth on Schedule 3.6; and (iii) no portion of
------------
any real property owned or leased by any Loan Party has suffered any material
damage by fire or other casualty loss which has not heretofore been completely
repaired and restored to its original condition. All material permits required
to have been issued or appropriate to enable the real property owned or leased
by any Loan Party to be lawfully occupied and used for all of the purposes for
which they are currently occupied and used, have been lawfully issued and are,
as of the date hereof, in full force and effect.
3.7 Restrictions; No Default; Material Contracts. No contract, lease,
--------------------------------------------
agreement or other instrument to which any Loan Party is a party or by which it
or any of its properties or assets is bound or affected and no provision of any
charter, corporate restriction, applicable law or governmental regulation has
resulted in or will result in a Material Adverse Effect. No Loan Party is in
default and, to Borrower's Knowledge, no third party is in default, under or
with respect to any material contract, agreement, lease or other instrument to
which any Loan Party is a party. No Default has occurred and is continuing.
Schedule 3.7, as supplemented from time to time by written disclosures to the
- ------------
Lender, sets forth a complete and accurate list of all Material Contracts of the
Borrower and each of its Subsidiaries.
3.8 Labor Matters. Except as set forth on Schedule 3.8, there are no
------------- ------------
strikes or other labor disputes against any Loan Party that are pending or, to
Borrower's Knowledge, threatened. Hours worked by and payment made to employees
of each Loan Party have not been in violation of the Fair Labor Standards Act or
any other applicable law dealing with such matters which would have a Material
Adverse Effect. All material payments due from any Loan Party on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of such Loan Party. Except as set forth on Schedule 3.8, no Loan
------------
Party has any obligation under any collective bargaining agreement, management
agreement, or any employment agreement, and a correct and complete copy of each
agreement listed on Schedule 3.8 has been provided to Agent. There is no
------------
organizing activity involving any Loan Party pending or, to Borrower's
Knowledge, threatened by any labor union or group of employees. Except as set
forth on Schedule 3.14, there are no representation proceedings pending or, to
-------------
Borrower's Knowledge, threatened with the National Labor Relations Board, and no
labor organization or group of
20
<PAGE>
employees of any Loan Party has made a pending demand for recognition, and,
there are no complaints or charges against any Loan Party pending or threatened
to be filed with any federal, state, local or foreign court, govern mental
agency or arbitrator based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment by any Loan Party of any
individual.
3.9 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth on Schedule 3.9, Borrower has no
- ------------ ------------
Subsidiaries, is not engaged in any joint venture or partnership with any other
Person, and is not an Affiliate of any other Person. The Stock of each Loan
Party owned by each of the stockholders thereof named on Schedule 3.9
------------
constitutes all of the issued and outstanding Stock of such Loan Party. Except
as set forth on Schedule 3.9, there are no outstanding rights to purchase
------------
options, warrants or similar rights or agreements pursuant to which any Loan
Party may be required to issue, sell or purchase any Stock or other equity
security. Schedule 3.9 lists all outstanding Stock of each Loan Party as of the
------------
Closing Date. Schedule 6.3 lists all Indebtedness of each Loan Party as of the
------------
Closing Date.
3.10 Government Regulation. No Loan Party is (i) an "investment company"
---------------------
or an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940 as amended; (ii) is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or any
other federal or state statute that restricts or limits such Loan Party's
ability to incur Indebtedness, pledge its assets, or to perform its obligations
hereunder, or under any other Loan Document, and the making of the Loans by
Lenders, the application of the proceeds and repayment thereof by each Loan
Party, and the consummation of the transactions contemplated by this Agreement
and the other Loan Documents, will not violate any provision of any such statute
or any rule, regulation or order issued by the Securities and Exchange
Commission.
3.11 Margin Regulations. No Loan Party is engaged in the business of
------------------
extending credit for the purpose of purchasing or carrying Margin Stock and no
proceeds of the Loans or any other extensions of credit under this Agreement
will be used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock. Following
application of the proceeds of each Loan, none of the assets (either of Borrower
only or of Borrower and its Subsidiaries on a consolidated basis) subject to the
provisions of Section 6.3, 6.7 or 6.22 will be Margin Stock. Borrower will not
------------------------
take or permit to be taken any action which might cause any Loan Document or any
document or instrument delivered pursuant hereto or thereto violate any
regulation of the Board of Governors of the Federal Reserve Board.
3.12 Taxes. All federal, state, local and foreign tax returns, reports and
-----
statements, including, but not limited to, information returns (Form 1120-S)
required to be filed by each Loan Party, have been filed with the appropriate
Governmental Authority and all Charges and other impositions shown thereon to be
due and payable have been paid prior to the date on which any fine, penalty,
interest or late charge may be added thereto for nonpayment thereof, or any such
fine, penalty, interest, late charge or loss has been paid. Each Loan Party has
paid when due and payable all material Charges required to be paid by it.
Proper and accurate amounts have
21
<PAGE>
been withheld by each Loan Party from their respective employees for all periods
in full and complete compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective Governmental
Authorities. Schedule 3.12 sets forth those taxable years for which any of the
-------------
tax returns of each Loan Party are currently being audited by the IRS or any
other applicable Governmental Authority; and any assessments or threatened
assessments in connection with such audit or otherwise currently outstanding.
Except as described in Schedule 3.12, no Loan Party has executed or filed with
-------------
the IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any Charges. No Loan Party has filed a consent pursuant to IRC
Section 341(f) or agreed to have IRC Section 341(f) (2) apply to any
dispositions of subsection (f) assets (as such term is defined in IRC Section
341(f)(4)). None of the property owned by any Loan Party is property which is
required to treat as being owned by any other Person pursuant to the provisions
of IRC Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and
in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is
"tax-exempt use property" within the meaning of IRC Section 168(h). No Loan
Party has agreed or been requested to make any adjustment under IRC Section 481
(a) by reason of a change in accounting method or otherwise. No Loan Party has
any obligation under any written tax sharing agreement except as described on
Schedule 3.12.
- -------------
3.13 ERISA. Schedule 3.13 lists all Plans maintained or contributed to by
----- -------------
any Loan Party and all Qualified Plans maintained or contributed to by any ERISA
Affiliate, and separately identifies the Title IV Plans, Multiemployer Plans,
any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension
Plans, Welfare Plans and Retiree Welfare Plans. IRS determination letters
regarding the qualified status under Section 401 of the IRC of each Qualified
Plan have been received as of the dates listed on Schedule 3.13. Each of the
-------------
Qualified Plans has subsequently been amended to comply with the Tax Reform Act
of 1986 and to make other necessary or desirable changes. To the Knowledge of
Borrower, the Qualified Plans as amended continue to qualify under Section 401
of the IRC, the trusts created thereunder continue to be exempt from tax under
the provisions of Section 501(a) of the IRC, and nothing has occurred which
would cause the loss of such qualification or tax-exempt status. Each Qualified
Plan so amended will be submitted to the IRS for a determination letter as to
the ongoing qualified status of the Plan under the IRC within the applicable IRC
401(b) remedial amendment period for the Tax Reform Act of 1986; and each such
Plan shall be amended, including retroactive amendments, as required during such
determination letter process to maintain the qualified status of such Plans. To
the Knowledge of Borrower, each Plan is in compliance in all material respects
with the applicable provisions of ERISA and the IRC, including the filing of all
reports required under the IRC or ERISA which are true and correct as of the
date filed, and all required contributions and benefits have been paid in
accordance with the provisions of each such Plan. No Loan Party or other ERISA
Affiliate, with respect to any Qualified Plan, has failed to make any
contribution or pay any amount due as required by Section 412 of the IRC or
Section 302 of ERISA. With respect to all Retiree Welfare Plans, the present
value of future anticipated expenses pursuant to the latest actuarial
projections of liabilities does not exceed $100,000.00, and copies of such
latest projections have been provided to Agent; with respect to Pension Plans,
other than Qualified Plans and the unfunded Pension Plans listed in Schedule
--------
22
<PAGE>
3.13, the present value of the liabilities for current participants thereunder
- ----
using interest assumptions described in IRC 411(a)(ii) does not exceed
$100,000.00. No Loan Party has engaged in a prohibited transaction, as defined
in Section 4975 of the IRC or Section 406 of ERISA, in connection with any Plan
which would subject any such Person (after giving effect to any exemption) to a
material tax on prohibited transactions imposed by Section 4975 of the IRC or
any other material liability.
Except as set forth on Schedule 3.13: (i) no Title IV Plan has any
-------------
Unfunded Pension Liability; (ii) no ERISA Event or event described in Section
4062 (e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the Knowledge of
Borrower, threatened claims, actions or lawsuits (other than claims for benefits
in the normal course), asserted or instituted against (x) any Plan or its
assets, (y) any fiduciary with respect to any Plan or (z) any Loan Party or any
ERISA Affiliate with respect to any Plan; (iv) no Loan Party or any ERISA
Affiliate has incurred or reasonably expects to incur any Withdrawal Liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 of ERISA as a
result of a complete or partial withdrawal from a Multiemployer Plan; (v) within
the last five years no Loan Party or other ERISA Affiliate has engaged in a
transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities
being transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan which is a
Retiree Welfare Plan provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment (except as may be required by Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant); (vii) each Loan Party or other ERISA Affiliate have complied with
the notice and continuation coverage requirements of Section 4980B of the IRC
and the proposed or final regulations thereunder; and (viii) no liability under
any Plan has been funded, nor has such obligation been satisfied with, the
purchase of a contract from an insurance company that is not rated AAA by
Standard & Poor's Corporation and the equivalent by each other nationally
recognized rating agency.
3.14 No Litigation. Except as set forth on Schedule 3.14, no action, claim
------------- -------------
or proceeding is now pending or, to the Knowledge of Borrower, threatened
against any Loan Party, at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, or local government
or of any agency or subdivision thereof, or before any arbitrator or panel of
arbitrators, (i) which challenges any such Person's right, power, or competence
to enter into or perform any of its obligations under the Loan Documents, or the
validity or enforceability of any Loan Document or any action taken thereunder
or (ii) which if determined adversely, could have or result in a Material
Adverse Effect. To the Knowledge of Borrower, there does not exist a state of
facts which is reasonably likely to give rise to such proceedings.
3.15 Brokers. Except as set forth on Schedule 3.15, no broker or finder
------- -------------
acting on behalf of any Loan Party brought about the obtaining, making or
closing of the credit extended pursuant to this Agreement or the transactions
contemplated by the Loan Documents and no
23
<PAGE>
Loan Party has any obligation to any Person in respect of any finder's or
brokerage fees in connection therewith.
3.16 Patents, Trademarks, Copyrights and Licenses. Except as otherwise set
--------------------------------------------
forth on Schedule 3.16, each Loan Party owns all licenses, patents, patent
-------------
applications, copyrights, service marks, trademarks, trademark applications and
trade names which are necessary to continue to conduct its business as
heretofore conducted by it, now conducted by it and proposed to be conducted by
it, each of which is listed, together with Patent and Trademark Office
application or registration numbers, where applicable, on Schedule 3.16. Each
-------------
Loan Party conducts business without infringement or claim of infringement of
any license, patent, copyright, service mark, trademark, trade name, trade
secret or other intellectual property right of others, except where such
infringement or claim of infringement could not have or result in a Material
Adverse Effect. Except as set forth on Schedule 3.16, to Borrower's Knowledge,
-------------
there is no infringement or claim of infringement by others of any material
license, patent, copyright, service mark, trademark, trade name, trade secret or
other intellectual property right of any Loan Party.
3.17 Full Disclosure. No information contained in this Agreement, the
---------------
other Loan Documents, the Financials or any written statement furnished by or on
behalf of any Loan Party or any Affiliate thereof pursuant to the terms of this
Agreement or any other Loan Document, which has previously been delivered to
Agent or any Lender, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
With respect to all business plans and other forecasts and projections
(including, without limitation, the Projections) furnished by or on behalf of
Borrower and made available to Agent or any Lender relating to the financial
condition, operations, business, properties or prospects of Borrower or any
Subsidiary thereof (i) all facts stated as such therein are true and complete in
all material respects, (ii) all facts upon which the forecasts or projections
therein contained are based are true and complete in all material respects and
no material fact was omitted therefrom, (iii) all assumptions made on that basis
are reasonable under the circumstances and are disclosed therein, and (iv) the
forecasts or projections are reasonably based on those facts and assumptions.
With respect to any such forecasts or projections made available to Agent or any
Lender after the Closing Date, the foregoing clauses (i) through (iv) shall be
true and correct in all respects as of the date of such projections or
forecasts.
3.18 Hazardous Materials. Except as set forth on Schedule 3.18 or routine
------------------- -------------
operations in the ordinary course of business in compliance with applicable
permits issued by a Governmental Authority, the Subject Property is free of any
Hazardous Material. In addition, Schedule 3.18 discloses existing or potential
-------------
environmental liabilities of each Loan Party of which Borrower, after due
inquiry, has Knowledge, which could constitute or result in a Material Adverse
Effect or Environmental Liabilities and Costs. Except as set forth on Schedule
--------
3.18, no Loan Party has caused or suffered to occur any Release at, under, above
- ----
or within any Subject Property. No Loan Party is involved in operations which
could lead to the imposition of any liability or Lien on it, or any owner of any
premises which it occupies, under the Environmental Laws, and no Loan Party has
permitted any tenant or occupant of such premises to engage in any such
activity.
24
<PAGE>
3.19 Insurance Policies. Schedule 3.19 lists all insurance of any nature
------------------ -------------
maintained for current occurrences by each Loan Party, as well as a summary of
the terms of such insurance. Borrower covenants that such insurance complies
with and shall at all times comply with the standards set forth on Annex D.
-------
3.20 Deposit and Disbursement Accounts. Schedule 3.20 lists all banks and
--------------------------------- -------------
other financial institutions at which Borrower or any Subsidiary thereof
maintains deposits and/or other accounts and/or post office lock boxes, and such
Schedule correctly identifies the name, address and telephone number of each
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number.
3.21 Subordinated Notes. None of the Subordinated Notes has been
------------------
amended or modified in any respect and no provision therein has been waived, and
no default or event of default under the Subordinated Notes has occurred and is
continuing.
3.22 Representations and Warranties Regarding the Collateral.
-------------------------------------------------------
(a) Borrower is the sole owner of each item of the Collateral in which
it purports to grant a security interest hereunder, having good and marketable
title thereto free and clear of any and all Liens except (i) the security
interest granted to Agent, for itself and Lenders under this Agreement and (ii)
Permitted Encumbrances. Borrower will warrant and defend the Collateral against
all claims and demands of all persons at any time claiming the same or any
interest thereon.
(b) No effective security agreement, financing statement, equivalent
security or Lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except (i) such
as have been filed in favor of Agent, for itself and for Lenders, pursuant to
this Agreement or (ii) such as relate to Permitted Encumbrances.
(c) As a result of the filing of appropriate financing statements in
the jurisdictions listed on Schedule 3.22(c) hereto, this Agreement is effective
----------------
to create a valid and continuing Lien on and perfected security interest in
favor of Agent, for itself and for Lenders, in the Collateral with respect to
which a security interest may be perfected by filing pursuant to the Code, which
Lien and security interest is prior to all other Liens except those Liens
specifically designated on Schedule 6.7 as being prior to the Lien of this
------------
Agreement as a matter of law, and is enforceable as such as against creditors of
and purchasers from Borrower (other than purchasers of Inventory in the ordinary
course of business). All action (including, without limitation, all filings,
registrations and recordings) necessary or desirable to create, protect and
perfect the security interest granted to Agent, for itself and for Lenders,
hereby in respect of each item of the Collateral has been duly accomplished.
(d) Schedule 3.22(d) hereto lists all Instruments of Borrower. All
----------------
action necessary or desirable to protect and perfect the security interest of
Agent, for itself and for Lenders, granted hereby in each item set forth on
Schedule 3.22(d), including the delivery of all
- ----------------
25
<PAGE>
originals thereof to Agent, for itself and for Lenders, has been duly taken
(except as otherwise required by Revolving Lender in accordance with the terms
of the Subordination Agreement between Agent and Revolving Lender). The security
interest of Agent, for itself and for Lenders, in the Collateral listed on
Schedule 3.22(d) hereto is prior to all other Liens (except as otherwise
- ----------------
required by Revolving Lender in accordance with the terms of the Subordination
Agreement between Agent and Revolving Lender) and is enforceable as such against
creditors of and (except as provided by the Code) purchasers from Borrower.
(e) Borrower's chief executive office, principal place of business,
corporate offices, all warehouses and premises within which Collateral is stored
or located, and the locations of all of its records concerning the Collateral
are set forth on Schedule 3.22(c). Such Schedule 3.22(c) correctly identifies
---------------- ----------------
any of such facilities or locations that are not owned by Borrower and sets
forth the names of the owners and lessors or collateral of, and the holders of
any mortgages on, such facilities and locations. Borrower shall not change its
chief executive office, principal place of business, corporate offices, or
warehouses or Collateral premises, or the location of its records concerning the
Collateral without giving thirty (30) days prior written notice thereof to Agent
and taking all actions deemed by Agent necessary or appropriate to protect and
perfect Agent's interest in the Collateral.
(f) (i) Each Account represents a bona fide sale of Inventory to
---- ----
customers in the ordinary course of Borrower's business completed in accordance
with the terms and provisions contained in the documents available to Agent with
respect thereto and is not evidenced by either a Document, Instrument or Chattel
Paper; (ii) the amounts shown on any aged receivable trial balance delivered by
Borrower to Revolving Lender pursuant to documents governing the Revolving
Credit Facility and on Borrower's books and records and all invoices and
statements which may be delivered to Revolving Lender with respect thereto are
actually and absolutely owing to Borrower and are not in any way contingent;
(iii) there are no setoffs, claims or disputes existing or asserted with respect
to any Account and Borrower has not made any agreement with any Account Debtor
for any deduction therefrom except a discount or allowance allowed by Borrower
in the ordinary course of its business for prompt payment; (iv) to the best of
Borrower's Knowledge, there are no facts, events or occurrences which in any way
impair the validity or enforcement of any Account or tend to reduce the amount
payable thereunder as shown on the respective aged receivable trial balances,
Borrower's books and records and all invoices and statements delivered to
Revolving Lender with respect thereto; (v) to the best of Borrower's Knowledge,
all Account Debtors have the capacity to contract; (vi) Borrower has received no
notice of proceedings or actions which are threatened or pending against any
Account Debtor which might result in any material adverse change in such Account
Debtor's financial condition; and (vii) Borrower has no Knowledge that any
Account Debtor is unable generally to pay its debts as they become due.
(g) With respect to any Inventory, (i) such property is located at one
of the locations set forth on Schedule 3.22(c), (ii) Borrower has good,
----------------
indefeasible and marketable title to such property and such property is not
subject to any Lien whatsoever, except for Permitted Encumbrances, (iii) such
property is of good and merchantable quality, free from any defects, (iv) except
as noted on Schedule 3.16, such property is not subject to any licensing,
-------------
patent, royalty,
26
<PAGE>
trademark, tradename or copyright agreements with any third parties, and (v) the
completion of manufacture, sale or other disposition of such property by Agent
following a Default shall not require the consent of any person (except, so long
as the Revolving Credit Facility is in effect, Revolving Lender) and shall not
constitute a breach or default under any contract or agreement to which Borrower
is a party or to which such property is subject (other than the documents
governing the Revolving Credit Facility).
3.23 Solvency. Both before and after giving effect to (a) the Loans to be
--------
made or extended on the Closing Date or such other date as Loans requested
hereunder are made or extended, (b) the disbursement of the proceeds of such
Loans pursuant to the instructions of Borrower, (c) any Acquisition and the
consummation of the other transactions contemplated hereby and (d) the payment
and accrual of all transaction costs in connection with the foregoing, each Loan
Party is Solvent.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. Borrower covenants and agrees that from and
-------------------
after the Closing Date and until the Termination Date, it shall deliver to the
Agent and/or Lenders, as required, the Financial Statements, Projections and
notices at the times and in the manner set forth on Annex C. Upon the request
-------
of any Lender, Agent shall forward such Financial Statements, Projections and
notices to such Lender.
4.2 Communication with Accountants. Borrower (for itself and each
------------------------------
Subsidiary thereof) authorizes to Agent and, so long as a Default or Event of
Default shall have occurred and be continuing, each Lender to communicate
directly with its and its Subsidiaries' independent certified public accountants
and tax advisors and authorizes those accountants to disclose to Agent and each
Lender any and all financial statements and other supporting financial documents
and schedules including copies of any management letter with respect to the
business, financial condition and other affairs of Borrower and each Subsidiary
thereof. At or before the Closing Date, Borrower shall deliver a letter
addressed to such accountants and tax advisors instructing them to comply with
the provisions of this Section 4.
---------
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees (for itself and its Subsidiaries) that,
unless Agent shall otherwise consent in writing, from and after the date hereof
and until the Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Borrower shall (and
------------------------------------------------
shall cause each of its Subsidiaries to) (a) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and its rights and franchises; (b) continue to conduct its business
substantially as now conducted or as otherwise permitted hereunder; (c) at all
times maintain, preserve and protect all of its Intellectual Property, and
preserve all the remainder of its property, in use or useful in the conduct of
its business and keep the same in good repair, working order and condition
(taking into consideration ordinary wear and tear) and from time to time make,
or cause to be made, all necessary or appropriate repairs, replacements
27
<PAGE>
and improvements thereto consistent with industry practices, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; and (d) transact business only under the names set forth
on Schedule 3.2.
------------
5.2 Payment of Charges and Claims. Borrower shall pay and discharge, or
-----------------------------
cause to be paid and discharged in accordance with the terms thereof, (A) all
Charges imposed upon it or any Subsidiary or its or their income and profits, or
any of its property (real, personal or mixed), and (B) lawful claims for labor,
materials, supplies and services or otherwise, which if unpaid might by law
become a Lien on its property; provided, that Borrower or any Subsidiary shall
--------
not be required to pay any such Charge or claim which is being contested in good
faith by proper legal actions or proceedings, so long as at the time of
commencement of any such action or proceeding and during the pendency thereof
(i) no Default shall have occurred and be continuing, (ii) adequate reserves
with respect thereto are established and are maintained in accordance with GAAP,
(iii) such contest operates to suspend collection of the contested Charges or
claims and is maintained and prosecuted continuously with diligence, (iv) none
of the Collateral would be subject to forfeiture or loss or any Lien by reason
of the institution or prosecution of such contest, (v) no Lien shall exist, be
imposed or be attempted to be imposed for such Charges or claims during such
action or proceeding unless the full amount of such Charge or claim is covered
by insurance satisfactory in all respects to Agent, and (vi) Borrower shall
promptly pay or discharge such contested Charges and all additional charges,
interest penalties and expenses, if any, and shall deliver to Agent evidence
acceptable to Agent of such compliance, payment or discharge, if such contest is
terminated or discontinued adversely to Borrower.
5.3 Books and Records. Borrower shall (and shall cause each Subsidiary
-----------------
to) keep adequate records and books of account with respect to its business
activities, in which proper entries, reflecting all of its consolidated and
consolidating financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financials referred to in paragraph I of Schedule 3.4.
------------
5.4 Litigation. Borrower shall notify Agent in writing, promptly upon
----------
learning thereof, of any litigation, Claim or other action commenced or
threatened against Borrower or any Subsidiary, and of the institution against
any such Person of any suit or administrative proceeding which (i) may involve
an amount in excess of $250,000.00 individually or in the aggregate or (ii)
could have or result in a Material Adverse Effect if adversely determined.
5.5 Insurance.
---------
(a) Borrower shall, at its (or its Subsidiary's) sole cost and expense
maintain or cause to be maintained, the policies of insurance in such amounts
and as otherwise described in Annex D and Section 2.1(d). Borrower shall notify
------- --------------
Agent promptly of any occurrence causing a material loss or decline in value of
any real or personal property and the estimated (or actual, if available) amount
of such loss or decline, except as specified otherwise on Annex D. Subject to
-------
the rights of Revolving Lender (so long as any amounts are outstanding under the
Revolving Credit Facility or Revolving Lender has any commitment to advance
funds thereunder) with respect to proceeds of losses or declines relating to
Inventory, Borrower hereby directs all present
28
<PAGE>
and future insurers under its "All Risk" policies of insurance to pay all
proceeds payable thereunder directly to Agent for the benefit of Lenders
(provided, however, that if the amount of the proceeds of any such loss or
-------- -------
decline are less than $500,000, then upon Borrower's request, Agent shall
deliver such proceeds to Borrower to be used solely to repair or replace the
affected property). Borrower irrevocably makes, constitutes and appoints Agent
(and all officers, employees or agents designated by Agent) as Borrower's true
and lawful agent and attorney in-fact for the purpose of making, settling and
adjusting claims under the "All Risk" policies of insurance, endorsing the name
of Borrower on any check, draft, instrument or other item of payment for the
proceeds of such "All Risk" policies of insurance, and for making all
determinations and decisions with respect to such "All Risk" policies of
insurance. In the event Borrower at any time or times hereafter shall fail to
obtain or maintain (or fail to cause to be obtained or maintained) any of the
policies of insurance required above or to pay any premium in whole or in part
relating thereto, Agent, without waiving or releasing any Obligations or Default
hereunder, may at any time or times thereafter (but shall not be obligated to)
obtain and maintain such policies of insurance and pay such premium and take any
other action with respect thereto which Agent deems advisable. All sums so
disbursed, including attorneys' fees, court costs and other charges related
thereto, shall be payable, on demand, by Borrower to Agent and shall be
additional Obligations hereunder secured by the Collateral.
(b) Agent reserves the right at any time, upon review of Borrower's
risk profile, to require additional forms and limits of insurance to, in the
Lender's sole opinion, adequately protect interests of Agent and the Lenders.
Borrower shall, if so requested by Agent, deliver to Agent, as often as Agent
may request, a report of a reputable insurance broker satisfactory to Agent with
respect to its insurance policies.
(c) Borrower shall deliver to Agent endorsements to all of its and its
Subsidiaries' (i) "All Risk" and business interruption insurance naming Agent,
on behalf of itself and the Lenders, as loss payee, and (ii) general liability
and other liability policies naming Agent, on behalf of itself and the Lenders,
as additional insureds.
5.6 Compliance with Laws. Borrower shall (and shall cause each of its
--------------------
Subsidiaries to) comply in all material respects with all federal, state and
local laws, permits and regulations applicable to it, including, without
limitation, those relating to licensing, environmental, ERISA and labor matters.
5.7 Agreements. Borrower shall (and shall cause each of its Subsidiaries
----------
to) perform, within all required time periods (after giving effect to any
applicable grace periods), all of its obligations and enforce all of its rights
under each agreement, contract, instrument or other document to which it is a
party, including, without limitation, any leases and customer contracts to which
it is a party where the failure to so perform and enforce could have or result
in a Material Adverse Effect. Borrower shall not (and shall not permit any of
its Subsidiaries to) terminate or modify any provision of any agreement,
contract, instrument or other document to which it is a party which termination
or modification could have or result in a Material Adverse Effect. Borrower
shall (and shall cause each of its Subsidiaries to) perform and comply with all
obligations in respect of Accounts, Chattel Paper, Contracts, Licenses,
Instruments, Documents
29
<PAGE>
and all other agreements constituting or giving rise to Collateral. Borrower
shall not, without Agent's prior written consent, with respect to any of the
Accounts, Chattel Paper, Instruments or amounts due under any Contract (i) grant
any extension of the time of payment of any thereof, other than those granted in
the ordinary course of business; (ii) compromise or settle the same for less
than the full amount thereof (other than the compromise or settlement, for
adequate consideration, of Accounts in the ordinary course of business
consistent with past practices the aggregate amount of which Accounts does not
exceed $100,000.00 in any Fiscal Year); (iii) release, in whole or in part, any
Person liable for the payment thereof; or (iv) allow any credit or discount
whatsoever thereon other than trade discounts granted in the ordinary course of
business of Borrower.
5.8 Supplemental Disclosure. At the request of Agent (in the event that
-----------------------
such information is not otherwise delivered by Borrower to Agent pursuant to
this Agreement) but not more frequently than every three months, Borrower will
supplement (or cause to be supplemented) each Schedule hereto, or representation
herein or in any other Loan Document with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in such Schedule or as an
exception to such representation or which is necessary to correct any
information in such Schedule or representation which has been rendered
inaccurate thereby; provided however, that such supplement to such Schedule or
-------- -------
representation shall not be deemed an amendment thereof unless expressly
consented to in writing by Agent, and no such amendments, except as the same may
be consented to in a writing which expressly includes a waiver, shall be or be
deemed a waiver by Agent of any Default disclosed therein. Borrower shall, if
so requested by Agent, furnish to Agent as often as it reasonably requests,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail, and, Borrower shall advise Agent promptly, in
reasonable detail, of (i) any Lien, other than as permitted pursuant to Section
-------
6.7, attaching to or asserted against any of the Collateral, (ii) any material
- ---
change in the composition of the Collateral and (iii) the occurrence of any
other event which would have a Material Adverse Effect upon the Collateral
and/or the Lien of the Agent, for the benefit of itself and Lenders, thereon.
5.9 Environmental Matters. Borrower shall
---------------------
(i) comply with the Environmental Laws and permits applicable to it,
(ii) notify Agent promptly after Borrower becomes aware of any Release
upon any Subject Property, and
(iii) promptly forward to Agent a copy of any order, notice,
permit, application, or any communication or report received by any Loan Party
in connection with any such Release or any other matter relating to the
Environmental Laws that may affect any Subject Property or any Loan Party. The
provisions of this Section 5.9 shall apply whether or not the Environmental
-----------
Protection Agency, any other federal agency or any state or local environmental
agency has taken
30
<PAGE>
or threatened any action in connection with any Release or the presence of any
Hazardous Materials.
5.10 Landlord's and Mortgagee's Agreements. Borrower shall obtain a
-------------------------------------
landlord's agreement in form and substance acceptable to Agent from the lessor
of any present or future leased premises of Borrower and mortgagee's agreement
in form and substance acceptable to Agent from each mortgagee of a Loan Party,
agreeing (among other things) to waive any lien any of said entities may have
upon the Collateral.
5.11 Certain Obligations Respecting Subsidiaries. Borrower will, and will
-------------------------------------------
cause each of its Subsidiaries to, take such action from time to time as shall
be necessary to ensure that each of its Subsidiaries is a wholly owned
Subsidiary. Borrower will not permit any of its Subsidiaries to enter into,
after the date of this Agreement, any indenture, agreement, instrument or other
arrangement that, directly or indirectly, prohibits or restrains, or has the
effect of prohibiting or restraining, or imposes materially adverse conditions
upon, the incurrence or payment of Indebtedness, the granting of Liens, the
declaration or payment of dividends or other Restricted Payments, the making of
loans, advances or Investments or the sale, assignment, transfer or other
disposition of any property or assets.
5.12 Application of Proceeds. Borrower shall use the proceeds of (i) the
-----------------------
Term Loan as provided in Section 1.1(d); and (ii) the Acquisition Line Advances
--------------
as provided in Section 1.2(a).
--------------
5.13 Fiscal Year. Borrower shall, and shall cause each Subsidiary to,
-----------
maintain as its Fiscal Year the twelve month period ending on December 31 of
each year.
5.14 Casualty and Condemnation.
-------------------------
(a) Borrower shall promptly notify Agent of any loss, damage, or
destruction to any Collateral or any real property owned by Borrower whether or
not constituting Collateral (collectively, "Property") or arising from its use,
--------
whether or not covered by insurance. Agent is hereby authorized to adjust losses
and collect all insurance proceeds (related to the Collateral) directly. If,
notwithstanding the provisions hereof which require that Agent, on behalf of
itself and the Lenders, be the sole loss payee, a check or other instrument from
an insurer is made payable to Borrower or Borrower and Agent jointly, Agent may
endorse Borrower's name thereon and take such other action as Agent may elect to
obtain the proceeds thereof. After deducting from such proceeds the expenses,
if any, incurred by Agent in the collection or handling thereof, Agent may apply
such proceeds to the reduction of the Obligations in the manner set forth in
Section 1.7 or, at Agent's option in its sole discretion, may permit or require
- -----------
Borrower to use such proceeds, or any part thereof, to replace, repair or
restore such Collateral as provided in paragraph (c) below.
(b) Borrower shall promptly upon learning of the institution of any
proceeding for the condemnation or other taking of any of its Property, notify
Agent of the pendency of such proceeding, and agrees that Agent may participate
in any such proceeding and Borrower from time to time will deliver to Agent all
instruments reasonably requested by Agent to permit such
31
<PAGE>
participation. Agent shall (and is hereby authorized to) collect any and all
awards, payments or other proceeds of any such condemnation or taking and apply
such proceeds to the reduction of the Obligations in the manner set forth in
Section 1.7 or, at Agent's option in its sole discretion, may permit or require
- -----------
Borrower to use such proceeds, or any part thereof, to replace, repair or
restore such Collateral as provided in paragraph (c) below.
(c) Any Collateral which is to be replaced, repaired or restored
pursuant to paragraph (a) or (b) above shall be replaced, repaired or restored
pursuant to such terms and conditions as Agent may require and with materials
and workmanship of substantially as good a quality as existed before such loss
or taking, and Borrower shall commence such replacement, repair or restoration
as soon as practicable and proceed diligently with it until completion to
Agent's satisfaction. Borrower shall provide to Agent written progress reports,
other information and evidence of its compliance with the foregoing.
5.15 Covenants Regarding the Collateral.
----------------------------------
(a) Further Assurances; Pledge of Instruments. At any time and from
-----------------------------------------
time to time, upon the written request of Agent and at the sole expense of
Borrower, Borrower shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Agent may
reasonably deem desirable to obtain the full benefits of this Agreement and of
the rights and powers herein granted, including (i) using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment to
or for the benefit of Agent of any License (including, but not limited to
software licenses) or Contract held by Borrower or in which Borrower has any
rights not heretofore assigned, (ii) filing any financing or continuation
statements under the Code with respect to the liens and security interests
granted hereunder or under any other Loan Document, (iii) transferring
Collateral to Agent's possession (if such Collateral consists of Documents,
Instruments or Chattel Paper or if a security interest in such Collateral can be
perfected only by possession, or if requested by Agent) (except as otherwise
required by Revolving Lender in accordance with the terms of the Subordination
Agreement between Agent and Revolving Lender) and (iv) using its best efforts to
obtain waivers of liens from landlords and mortgagees (it being understood that
Agent in its discretion may establish a reasonable reserve against availability
under this Agreement until the same have been obtained). Borrower also hereby
authorizes Agent to file any such financing or continuation statement without
the signature of Borrower to the extent permitted by applicable law. If any
amount payable under or in connection with any of the Collateral is or shall
become evidenced by any Instrument, such Instrument, other than checks and notes
received in the ordinary course of business, shall be duly endorsed in a manner
satisfactory to Agent immediately upon Borrower's receipt thereof.
(b) Maintenance of Records. Borrower shall keep and maintain, at its
----------------------
own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Borrower shall mark its books and records pertaining to the
Collateral to evidence this Agreement and the security interests granted hereby.
All Chattel Paper shall be marked with the following legend (except as otherwise
required by Revolving
32
<PAGE>
Lender in accordance with the terms of the Subordination Agreement between Agent
and Revolving Lender): "This writing and the obligations evidenced or secured
hereby are subject to the security interest of General Electric Capital
Corporation, for itself and as agent for itself and certain other Lenders." As
further security, Borrower agrees that Agent shall have a special property right
and security interest in all of Borrower's books and records pertaining to the
Collateral and, upon the occurrence and during the continuation of a Default,
Borrower shall deliver and turn over any such books and records to Agent or to
its representatives at any time on demand of Agent. Prior to the occurrence of a
Default and upon reasonable notice from Agent or the Lenders, Borrower shall
permit any representative of Agent to inspect such books and records and shall
provide photocopies thereof to Agent as more specifically set forth in Section
-------
1.10 of this Agreement.
- ----
(c) Continuous Perfection. Borrower shall not change its name,
---------------------
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the Code or any other then applicable
provision of the Code unless Borrower shall have given Agent at least thirty
(30) days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Agent to amend such financing statement or continuation statement
so that it is not seriously misleading.
(d) Provisions Regarding Accounts.
-----------------------------
(i) Borrower shall not re-date any invoice or sale or make sales on
extended dating beyond that customary in Borrower's business or extend or modify
any Account (other than corrections of errors in the ordinary course of
business). If Borrower becomes aware of any matter materially affecting any
Account, including information regarding the Account Debtor's creditworthiness,
and such Account could have a Material Adverse Effect, Borrower will promptly so
advise Agent.
(ii) Borrower shall not release, in whole or in part, the obligations
of any Person liable for payment in respect of any Account nor shall Borrower,
without Agent's written consent, accept any note or other Instrument (except a
check or other Instrument for the immediate payment of money) for an amount in
excess of $75,000.00, individually or in the aggregate, with respect to any
Accounts of one Account Debtor. Any such Instrument shall be considered as
evidence of the Account or Accounts and not payment thereof and (after
termination of the Revolving Credit Facility and payment in full of all
indebtedness thereunder) Borrower will promptly deliver such Instrument to Agent
appropriately endorsed in favor of Agent, for the benefit of itself and the
Lenders. Regardless of the form of presentment, demand, notice of dishonor,
protest, and notice of protest with respect thereto, the maker thereof will
remain liable thereon until such Instrument is paid in full.
(iii) Borrower shall not, without Agent's prior written consent,
compromise, settle or adjust any Account for less than the full amount thereof
if the reduction in
33
<PAGE>
the amounts payable under any Accounts as a result of any such compromise,
settlement or adjustment would exceed $75,000.00 in the aggregate in any Fiscal
Year.
(e) Provisions Regarding Inventory. Borrower agrees that all
------------------------------
Inventory manufactured or processed by Borrower will be manufactured and
processed in accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations, and orders thereunder. Borrower will not,
without Agent's written consent, sell any Inventory on a guaranteed sale, sale
and return, sale on approval, consignment, or other repurchase or return basis.
(f) Provisions Regarding Equipment. Borrower represents and warrants
------------------------------
to and agrees with Agent that all of the Equipment is and will be used or held
for use in Borrower's business. Borrower shall keep and maintain the Equipment
in good operating condition and repair (ordinary wear and tear excepted) and
shall make all necessary replacements thereof. Borrower shall promptly inform
Agent of any material additions to or deletions from the Equipment. Borrower
shall not permit any Equipment to become a fixture to real property or an
accession to other personal property, unless Agent has a valid, perfected, and
first priority Lien in such real or personal property. Borrower will not,
without Agent's prior written consent, alter or remove any identifying symbol or
number on the Equipment. Except as otherwise permitted pursuant to Section 6.8,
-----------
Borrower shall not, without the prior written consent of Agent, sell, lease as a
lessor, or otherwise dispose of any of the Equipment.
(g) Provisions Regarding Trademark Collateral.
-----------------------------------------
(i) Borrower shall notify Agent immediately if it knows or has reason
to know that any application or registration relating to any Trademark that is
material to the conduct of Borrower's business may become abandoned or
dedicated, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court)
regarding Borrower's ownership of any Trademark which is material to the conduct
of Borrower's business, its right to register the same, or to keep and maintain
the same.
(ii) In no event shall Borrower, either itself or through any agent,
employee, licensee or designee, file an application for the registration of any
Trademark with the United States Patent or Trademark Office or any similar
office or agency in any other country or any political subdivision thereof
without giving Agent prior written notice thereof, and, upon request of Agent,
Borrower shall execute and deliver any and all agreements, instruments,
documents and papers as Agent may request to evidence Agent's security interest
in such Trademark and the General Intangibles, including the goodwill, of
Borrower relating thereto or represented thereby.
(iii) Borrower shall take all necessary actions to maintain and
pursue each application, to obtain the relevant registration, and to maintain
the registration of each of the Trademarks which is material to the conduct of
Borrower's business, including the filing of
34
<PAGE>
applications for renewal, affidavits of use, affidavits of noncontestability and
opposition and interference and cancellation proceedings.
(iv) In the event that any of the Collateral that is composed of
Trademarks ("Trademark Collateral") is infringed upon, or misappropriated or
--------------------
diluted by a third party, Borrower shall notify Agent promptly after Borrower
learns thereof and shall, unless Borrower shall reasonably determine that such
Trademark Collateral is not material to the conduct of Borrower's business,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and shall
take such other actions as Borrower shall reasonably deem appropriate under the
circumstances to protect such Trademark Collateral.
(h) Provisions Regarding Patents and Copyrights.
-------------------------------------------
(i) Borrower agrees not to divest its rights under a Patent or
Copyright, without the prior written approval of Agent, and will take all action
necessary or advisable to maintain each Patent or Copyright that directly
contributes to five percent (5%) of Borrower's revenues.
(ii) Borrower agrees, promptly upon learning of the same, to furnish
Agent in writing with all pertinent information available to Borrower with
respect to any infringement or other violation of Borrower's rights in any
material Patent or Copyright, or with respect to any claim that practice of any
material Patent or Copyright violates any property right of that party.
Borrower further agrees, absent direction of Agent to the contrary, to prosecute
any person infringing any significant Patent or Copyright.
5.16 Agent's Appointment as Attorney-in-Fact.
---------------------------------------
(a) Borrower hereby irrevocably constitutes and appoints Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Agent's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby grants to Agent the power and right, on behalf of
Borrower, without notice to or assent by Borrower, and at any time, to do the
following:
(i) in the name of Borrower, in its own name or otherwise, take
possession of, endorse and receive payment of any checks, drafts, notes,
acceptances, or other Instruments for the payment of monies due under any
Collateral;
(ii) continue any insurance existing pursuant to the terms of the Loan
Documents, and pay all or any part of the premiums therefor and the costs
thereof; and
35
<PAGE>
(iii) receive payment of any and all monies, claims, and other amounts
due or to become due at any time arising out of or in respect of any Collateral.
(b) Borrower hereby irrevocably constitutes and appoints Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Agent's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby grants to Agent the power and right, on behalf of
Borrower, without notice to or assent by Borrower, upon the occurrence and
during the continuation of an Event of Default, to do the following:
(i) ask, demand, collect, receive and give acquittances and receipts
for any and all money due or to become due under any Collateral;
(ii) pay or discharge taxes, liens, security interest, or other
encumbrances levied or placed on or threatened against the Collateral;
(iii) effect any repairs or obtain any insurance called for by the
terms of this Agreement and pay all or any part of the premiums therefor and
costs thereof;
(iv) direct any party liable for any payment under or in respect of
any of the Collateral to make payment of any and all monies due or to become due
thereunder, directly to Agent or as Agent shall direct;
(v) sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with accounts and other documents
constituting or related to the Collateral;
(vi) settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or releases
as Agent may deem appropriate;
(vii) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by
Agent for the purpose of collecting any and all such monies due under any
Collateral whenever payable;
(viii) commence and prosecute any suits, actions or proceedings of law
or equity in any court of competent jurisdiction to collect the Collateral or
any part thereof and to enforce any other right in respect of any Collateral;
(ix) defend any suit, action or proceeding brought against Borrower
with respect to any Collateral if Borrower does not defend such suit, action or
proceeding or if
36
<PAGE>
Agent believes that Borrower is not pursuing such defense in a manner that will
maximize the recovery with respect to such Collateral;
(x) license or, to the extent permitted by an applicable license,
sublicense whether general, specific or otherwise, and whether on an exclusive
or non-exclusive basis, any Patent or Trademark throughout the world for such or
terms on such conditions and in such manner as Agent shall, in its sole
discretion, determine; and
(xi) sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with any of the Collateral as fully and completely as though
Agent were the absolute owner thereof for all purposes, and to do, at Agent's
option and Borrower's expense, at any time, or from time to time, all acts and
things which Agent reasonably deems necessary to perfect, preserve, or realize
upon the Collateral and Lenders' Lien therein in order to effect the intent of
this Agreement, all as fully and effectively as Borrower might do.
(c) Borrower hereby ratifies, to the extent permitted by law, all that
said attorneys shall lawfully do or cause to be done by virtue hereof. The
power of attorney granted pursuant to this Section 5.16 is a power coupled with
------------
an interest and shall be irrevocable until the Termination Date.
(d) The powers conferred on Agent hereunder are solely to protect the
Lenders' security interests in the Collateral and shall not impose any duty upon
it to exercise any such powers. Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and none of its
officers, directors, employees, agents or representatives shall be responsible
to Borrower for any act or failure to act, except for their own gross negligence
or willful misconduct as determined by a final judgment of a court of competent
jurisdiction.
(e) Borrower also authorizes Agent, at any time and from time to time,
to (i) communicate in its own name with any party to any Contract with regard to
the assignment of the right, title and interest of Borrower in and under the
Contracts and other matters relating thereto and (ii) execute, in connection
with the sale provided for in Section 8.2 hereof, any endorsements, assignments
-----------
or other instruments of conveyance or transfer with respect to the Collateral.
5.17 Maintenance Covenant. Borrower shall duly pay and discharge in
---------------------
accordance with Borrower's customary business practices in respect thereto, all
current debts, obligations and accounts payable as they become due, except for
such debts, obligations and accounts payable the validity of which are being
contested in good faith by appropriate proceedings, diligently pursued and
available to Borrower, with respect to which adequate reserves have been set
aside on its books.
37
<PAGE>
5.18 Year 2000 Problems.
------------------
On or prior to October 31, 1998, each Loan Party shall complete and
deliver to Agent a Year 2000 Assessment, and on or prior to January 31, 1999,
each Loan Party shall complete and deliver to Agent a Year 2000 Corrective Plan.
On or prior to April 1, 1999, each Loan Party shall implement Year 2000
Corrective Actions. On or before May 31, 1999, each Loan Party shall complete
Year 2000 Corrective Actions and Year 2000 Implementation Testing. On or before
August 31, 1999, each Loan Party shall eliminate all Year 2000 Problems, except
where the failure to correct the same could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate.
5.19 Interest Rate Protection.
------------------------
Within one hundred twenty (120) days from the Closing Date, Borrower
shall enter into an interest rate cap or other interest rate protection
agreement covering at least 50% of the aggregate principal amount of Term Loan
A, plus Term Loan B, plus Term Loan C then outstanding and having effective
---- ----
rates, maturity and other terms and conditions satisfactory to Agent.
6. NEGATIVE COVENANTS
Borrower covenants and agrees (for itself and each Subsidiary) that,
without the prior written consent of Agent and the Requisite Lenders, from and
after the date hereof and until the Termination Date:
6.1 Mergers, Subsidiaries, Etc. Borrower shall not (and shall not permit
---------------------------
any of its Subsidiaries to), directly or indirectly, by operation of law or
otherwise, merge with, consolidate with, acquire all or substantially all of the
assets or capital stock of, or otherwise combine with, any Person or form or
acquire any Subsidiary, provided, however, that the foregoing shall not prohibit
--------
a merger of a Person with and into Borrower consummated pursuant to an Eligible
Acquisition on the date of an Acquisition Line Advance. Prior to forming any
Subsidiary, Borrower shall (a) provide not less than thirty (30) days prior
written notice to Agent, (b) take all actions requested by Agent to protect and
preserve the Collateral, and (c) receive the prior written consent of Agent.
6.2 Investments. Borrower shall not (and shall not permit any of its
-----------
Subsidiaries to), directly or indirectly, make or maintain any Investment except
(i) as otherwise permitted by Section 6.3 or 6.4; (ii) Investments outstanding
------------------
on the date hereof and listed on Schedule 6.2; and (iii) advances constituting
------------
trade credit representing the purchase price of Inventory or supplies sold to
any Person (other than a Subsidiary or Affiliate of Borrower) in the ordinary
course of business and payable on terms not exceeding one hundred twenty (120)
days.
6.3 Indebtedness. Borrower shall not (and shall not permit any of its
------------
Subsidiaries to) create, incur, assume or permit to exist any Indebtedness,
except (i) the Obligations; (ii) Deferred Taxes; (iii) the Subordinated Notes;
(iv) Capital Lease Obligations permitted under clause (iv) of
38
<PAGE>
Section 6.7 and Indebtedness secured by purchase money Liens permitted under
- -----------
clause (iv) of Section 6.7 in a maximum aggregate amount outstanding not to
-----------
exceed $1,000,000; (v) Indebtedness under the Revolving Credit Facility, (vi)
the McQuiddy Note, (vii) Indebtedness owing to any of its Affiliates in an
aggregate amount not to exceed $500,000; and (viii) other Indebtedness set forth
on Schedule 6.3.
------------
6.4 Affiliate and Employee Loans and Transactions; Employment Agreements.
--------------------------------------------------------------------
Except as otherwise expressly permitted hereunder, Borrower shall not (and shall
not permit any of its Subsidiaries to) enter into any management agreements,
service agreements, lending, borrowing or other commercial transaction with any
of its Subsidiaries, Affiliates, officers, directors or employees, including,
without limitation, payment of any management, consulting, advisory or similar
fee; provided, however, Borrower may (i) on the date of any Acquisition Line
-------- -------
Advance, extend a loan to Holdings to enable Holdings to pay a portion of the
amount due to the applicable Sellers, such loan to be evidenced by a promissory
note executed by Holdings and payable to Borrower, (ii) extend loans to its
officers, directors and employees in a maximum aggregate principal amount
outstanding at any time for all officers, directors and employees of
$250,000.00, except as stated on Schedule 6.4, (iii) incur Indebtedness owing to
------------
any of its Affiliates as described in clause (vii) of Section 6.3; and (iv)
------------ -----------
extend loans to Harperprints in a maximum aggregate amount outstanding not to
exceed $150,000, such loans to be evidenced by a promissory note executed by
Harperprints and payable to Borrower. Set forth on Schedule 6.4 is a list of
------------
all such management agreements, service agreements, lending, borrowing or other
commercial transactions existing or outstanding as of the Closing Date.
6.5 Capital Structure and Business. Except as permitted under Section
------------------------------ -------
5.1, Borrower shall not (and shall not permit any of its Subsidiaries to) (i)
make any changes in its business objectives, purposes, or operations which could
in any way adversely affect the repayment of the Obligations or have or result
in a Material Adverse Effect, (ii) make any change in its capital structure as
described on Schedule 3.9 and Schedule 6.3 (including, without limitation, the
------------ ------------
issuance or recapitalization of any shares of Stock or other securities
convertible into Stock or any revision of the terms of its outstanding Stock),
(iii) amend its articles or certificate of incorporation, charter, by-laws or
other organizational documents, or (iv) engage in any business other than the
business currently engaged in by such Person.
6.6 Guaranteed Indebtedness. Borrower shall not (and shall not permit any
-----------------------
of its Subsidiaries to) incur any Guaranteed Indebtedness except (i) by
endorsement of instruments or items of payment for deposit to the general
account of such Person or (ii) for Guaranteed Indebtedness incurred for the
benefit of Borrower if the primary obligation is permitted by this Agreement for
Borrower to incur (and such Guaranteed Indebtedness shall be treated as a
primary obligation for all purposes hereof).
6.7 Liens. Borrower shall not (and shall not permit any of its
-----
Subsidiaries to) create or permit to exist any Lien on any of its properties or
assets except for (i) presently existing or hereafter created Liens in favor of
Agent, for the benefit of itself and the Lenders, to secure the Obligations;
(ii) Liens set forth on Schedule 6.7 existing on the Closing Date; (iii)
------------
Permitted Encumbrances; (iv) purchase money liens or purchase money security
interests upon or in
39
<PAGE>
Equipment acquired by Borrower or any of its Subsidiaries in the ordinary course
of business to secure the purchase price of such Equipment or to secure
Indebtedness or Capital Lease Obligations permitted under Section 6.3 incurred
-----------
solely for the purpose of financing the acquisition of such Equipment, so long
as such Equipment is not a component, part or accessory installed on, or an
accession, addition or attachment to, any other Equipment or other property of
Borrower or any Subsidiary thereof (except other Equipment on which a security
interest exists under this clause); and (v) extensions, renewals and
replacements of Liens referred to in clauses (ii) and (iv) above, provided that
------- ---- ----
any such extension, renewal or replacement Lien is limited to the property or
assets covered by the Lien extended, renewed or replaced and does not secure
Indebtedness in an amount greater than the amount of the outstanding
Indebtedness secured thereby immediately prior to such extension, renewal or
replacement; provided that Borrower shall not create or permit any Lien to exist
--------
on any of the Stock of Borrower's Subsidiaries or any of Borrower's Accounts
(other than Liens described in clause (i) above).
----------
6.8 Sale of Assets. Borrower shall not (and shall not permit any of its
--------------
Subsidiaries to) sell, transfer, convey, assign or otherwise dispose of any of
its assets or properties, including, without limitation, any Collateral;
provided, however, that the foregoing shall not prohibit (i) the sale of
- -------- -------
Inventory in the ordinary course of business; (ii) the sale or disposition of
any assets which have become obsolete or surplus to the business of Borrower or
any of its Subsidiaries which either (x) give rise to Net Proceeds which do not
exceed $250,000 per year, in the aggregate, or (y) have a depreciated value
according to Agent's internal analysis which does not exceed $250,000 in the
aggregate; or (iii) the sale or disposition of assets which either (x) give rise
to Net Proceeds which do not exceed (A) $10,000 individually, or (B) $250,000
per year, in the aggregate, or (y) have a depreciated value according to Agent's
internal analysis which does not exceed (A) $10,000 individually, or (B)
$250,000 per year, in the aggregate.
6.9 Material Contracts. Borrower shall not (and shall not permit any of
------------------
its Subsidiaries to) cancel or terminate any Material Contract or amend or
otherwise modify any Material Contract, or waive any default or breach any
Material Contract, or take any other action in connection with any Material
Contract that would have a Material Adverse Effect.
6.10 ERISA. Neither Borrower nor any ERISA Affiliate shall acquire any new
-----
ERISA Affiliate that maintains or has an obligation to contribute to a Pension
Plan that has either an "accumulated funding deficiency," as defined in Section
302 of ERISA, or any "unfunded vested benefits," as defined in Section
4006(a)(3)(E)(iii) of ERISA in the case of any Pension Plan other than a
Multiemployer Plan and in Section 4211 of ERISA in the case of a Multiemployer
Plan. Additionally, neither Borrower nor any ERISA Affiliate shall permit or
suffer any condition set forth on Schedule 3.13 to cease to be met and satisfied
-------------
at any time; terminate any Pension Plan that is subject to Title IV of ERISA
where such termination could reasonably be anticipated to result in liability to
Borrower; (b) permit any accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, to be incurred with respect to any Pension Plan; fail to
make any contributions or fail to pay any amounts due and owing as required by
the terms of any Plan before such contributions or amounts become delinquent;
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan; at any time fail to
40
<PAGE>
provide the Agent with copies of any Plan documents or governmental reports or
filings, if reasonably requested by Agent.
6.11 Financial Covenants. Borrower shall not breach or fail to comply
-------------------
with any of the following financial covenants, each of which shall be calculated
in accordance with GAAP consistently applied (and based upon the financial
statements delivered hereunder):
(a) Interest Coverage Ratio. Holdings shall maintain an Interest
-----------------------
Coverage Ratio of not less than the ratio set forth below corresponding to the
applicable Fiscal Quarter set forth below:
Fiscal Minimum Interest
Quarter Coverage
Ending Ratio
---------- ----------------
31-Dec-98 1.90:1.0
31-Mar-99 1.90:1.0
30-June-99 1.90:1.0
30-Sep-99 2.25:1.0
31-Dec-99 2.25:1.0
31-Mar-00 2.25:1.0
30-June-00 2.25:1.0
30-Sep-00 2.25:1.0
31-Dec-00 2.50:1.0
31-Mar-01 2.50:1.0
30-June-01 2.50:1.0
30-Sep-01 2.50:1.0
31-Dec-01 3.00:1.0
31-Mar-02 3.00:1.0
30-June-02 3.00:1.0
30-Sep-02 3.00:1.0
31-Dec-02 3.25:1.0
(b) Capital Expenditures. Holdings shall not make aggregate non-
--------------------
financed Capital Expenditures (excluding any Capital Expenditures made by
Borrower pursuant to Section 5.14 to replace, repair or restore any Property
------------
subject to any loss or taking described therein) in any Fiscal Year in excess of
the amount set forth below for such Fiscal Year, determined on a consolidated
basis in accordance with GAAP:
Fiscal Year Maximum Amount of
Ending Capital Expenditures
1998 $3,000,000
1999 $4,000,000
2000 $5,000,000
2001 $6,000,000
2002 $6,000,000
41
<PAGE>
(c) Net Worth. Holdings shall maintain, on a consolidated and
---------
consolidating basis, at all times, a Net Worth of not less than the sum of (i)
$31,750,000, plus (ii) 85% of the cumulative Net Income, if positive for any
----
Fiscal Quarter, i.e. exclusive of negative Net Income for any Fiscal Quarter,
plus (iii) all net proceeds from any equity issuance.
- ----
6.12 Hazardous Materials. Except as set forth in Schedule 3.18, Borrower
------------------- -------------
shall not and shall not permit any of its Subsidiaries or any other Person
within the control of Borrower to (a) cause or permit a Release of Hazardous
Material on, under in or about any Subject Property; (b) use, store, generate,
treat or dispose of Hazardous Materials, except in compliance with Environmental
Laws; or (c) transport any Hazardous Materials to or from any Subject Property,
except in compliance with Environmental Laws.
6.13 Sale-Leasebacks. Borrower shall not (and shall not permit any of its
---------------
Subsidiaries to) engage in any sale-leaseback or similar transaction involving
any of its property or assets.
6.14 Cancellation of Indebtedness. Borrower shall not (and shall not
----------------------------
permit any of its Subsidiaries to) cancel any claim or Indebtedness owing to it,
except for reasonable consideration and in the ordinary course of its business,
or voluntarily prepay any Indebtedness (other than the Obligations).
6.15 Restricted Payments. Borrower shall not make any Restricted Payment
-------------------
to any Person and Borrower shall not permit any Subsidiary to make any
Restricted Payment other than to Borrower, provided, however, that Borrower may
-------- -------
pay dividends or payment of fees to Holdings made solely to enable Holdings to
pay (i) officers' salaries pursuant to applicable Employment Agreements and
operating expenses (including without limitation rental payments on leased real
property), (ii) interest on the Subordinated Indebtedness payable to the Sellers
(other than the McQuiddy Sellers) in accordance with the terms of the
Subordination Agreements, or (iii) principal and interest on the McQuiddy Note
when due pursuant to the terms thereof.
6.16 Real Property Leases. Borrower shall not (and shall not permit any of
--------------------
its Subsidiaries to) enter into or renew (by amendment, modification or
otherwise) any Lease other than renewals of existing Leases upon substantially
the same terms as are in effect on the Closing Date.
6.17 Bank Accounts. Borrower shall not (and shall not permit any of
-------------
its Subsidiaries to) maintain any deposit, operating or other bank accounts
except for those accounts identified on Schedule 3.20.
-------------
6.18 Subordinated Notes. Neither Borrower nor any of its Subsidiaries
------------------
shall purchase, redeem, retire or otherwise acquire for value, or set apart any
money for a sinking, defeasance or other analogous fund for, the purchase,
redemption, retirement or other acquisition of, or make any payment (scheduled,
voluntary or other) of principal of or interest on, or any other amount owing in
respect of, any Subordinated Notes, except that, so long as no Default shall
have occurred and be continuing (or would occur as a result of any such
payment), Borrower may, on
42
<PAGE>
regularly scheduled interest payment dates (which shall be no more frequent than
quarterly, unless Agent otherwise consents), make payments of interest on the
Subordinated Notes at the interest rate listed on each Subordinated Note
respectively, subject to satisfaction of the following conditions: (i) no
Default shall have occurred and be continuing (or would occur as a result of
such payment) on the date of such payment; (ii) Borrower shall have provided
Agent evidence reasonably satisfactory in the judgment of Agent that the
condition set forth in the foregoing clause (i) will be satisfied on and as of
the date of such payment; and (iii) upon Agent's request, Borrower shall have
given Agent at least five (5) Business Days prior written notice of its
intention to make any such payment. Borrower will not consent to any amendment,
modification, supplement or waiver of any of the provisions of the Subordinated
Notes or the McQuiddy Note.
6.19 No Speculative Transactions. Borrower shall not (and shall not permit
---------------------------
any of its Subsidiaries to) engage in any speculative transaction or any
transaction involving commodity options or futures contracts (other than in the
ordinary course of business consistent with past practice).
6.20 Margin Regulations. Borrower shall not use the proceeds of any Loan
------------------
to purchase or carry any Margin Stock or any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
6.21 Limitation on Negative Pledge Clauses. Borrower shall not (and shall
-------------------------------------
not permit any of its Subsidiaries to), directly or indirectly, enter into any
agreement with any Person, other than Agent and the Lenders pursuant to a Loan
Document or the Revolving Lender pursuant to a document governing the Revolving
Credit Facility, which prohibits or limits the ability of Borrower or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired.
6.22 Accounting Changes. Borrower shall not (and shall not permit any of
------------------
its Subsidiaries to) make, any significant change in accounting treatment and
reporting practices except for changes concurred in by Borrower's independent
public accountants and approved by Agent.
6.23 EBITDA. Borrower shall not permit the EBITDA of Holdings,
------
determined on a consolidated basis in accordance with GAAP, at the end of each
Fiscal Quarter set forth below to be less than the corresponding amount set
forth below:
Date Amount
------------ -----------
31-Mar-98 $ 3,000,000
30-June-98 $ 8,200,000
30-Sep-98 $12,400,000
31-Dec-98 $16,000,000
43
<PAGE>
6.24 Fixed Charge Coverage Ratio. Borrower shall not permit the Fixed
---------------------------
Charge Coverage Ratio of Holdings, determined on a consolidated basis in
accordance with GAAP, at the end of each Fiscal Quarter set forth below to be
less than the corresponding ratio set forth below:
Fiscal Quarter Ending Ratio
----------------------- --------
31-Dec-98 1.10:1.0
31-Mar-99 1.10:1.0
30-June-99 1.10:1.0
30-Sep-99 1.10:1.0
31-Dec-99 1.10:1.0
31-Mar-00 1.10:1.0
30-June-00 1.10:1.0
30-Sep-00 1.10:1.0
31-Dec-00 1.15:1.0
31-Mar-01 1.15:1.0
30-June-01 1.15:1.0
30-Sep-01 1.15:1.0
31-Dec-01 1.20:1.0
31-Mar-02 1.20:1.0
30-June-02 1.20:1.0
30-Sep-02 1.20:1.0
31-Dec-02 1.20:1.0
6.25 Leverage Ratio. Borrower shall not permit the Leverage Ratio at the
--------------
end of each Fiscal Quarter set forth below to be more than the corresponding
ratio set forth below:
Fiscal Quarter Ending Ratio
----------------------- --------
30-June-98 5.00:1.0
30-Sep-98 5.00:1.0
31-Dec-98 4.75:1.0
31-Mar-99 4.75:1.0
30-June-99 4.75:1.0
30-Sep-99 4.75:1.0
31-Dec-99 4.25:1.0
31-Mar-00 4.25:1.0
30-June-00 4.25:1.0
30-Sep-00 4.25:1.0
31-Dec-00 3.75:1.0
31-Mar-01 3.75:1.0
30-June-01 3.75:1.0
30-Sep-01 3.75:1.0
31-Dec-01 3.50:1.0
31-Mar-02 3.50:1.0
44
<PAGE>
30-June-02 3.50:1.0
30-Sep-02 3.50:1.0
31-Dec-02 3.50:1.0
7. TERM
7.1 Duration. The financing arrangement contemplated hereby shall be in
--------
effect until the Termination Date. On the Termination Date, the Acquisition Line
Commitment shall terminate and the Term Loan, Acquisition Line Advances and all
other Obligations shall immediately become due and payable in full, in cash.
7.2 Survival of Obligations. Except as otherwise expressly provided for
-----------------------
in the Loan Documents, no termination or cancellation (regardless of cause or
procedure) of any financing arrangement under this Agreement shall in any way
affect or impair the Obligations, duties, indemnities, and liabilities of any
Loan Party, or the rights of Agent and Lenders relating to any Obligations, due
or not due, liquidated, contingent or unliquidated or any transaction or event
occurring prior to such termination, or any transaction or event, the
performance of which is not required until after the Termination Date. Except
as otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations of or
binding upon any Loan Party, and all rights of Agent and each Lender, all as
contained in the Loan Documents shall not terminate or expire, but rather shall
survive such termination or cancellation and shall continue in full force and
effect until such time as all of the Obligations have been indefeasibly paid in
full in accordance with the terms of the agreements creating such Obligations.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
--------
Default" hereunder:
(a) Borrower shall fail to make any payment in respect of any
Obligations hereunder or under any of the other Loan Documents when due and
payable or declared due and payable, including, without limitation, any payment
of principal of, or interest on, the Term Loan or Acquisition Line Advances, and
the same shall remain unpaid for a period ending three (3) days after the date
such payment was due and payable or declared due and payable.
(b) Borrower shall fail or neglect to perform, keep or observe any of
the provisions of Section 6, Section 5.9, Section 5.5 or Section 5.1, or any of
--------- ----------- ----------- -----------
the provisions set forth on Annex C.
-------
(c) Any Loan Party shall fail or neglect to perform, keep or observe
any term or provision of this Agreement (other than any such term or provision
referred to in paragraph (a) or (b) above) or of any of the other Loan
Documents, and the same shall remain unremedied for a period ending on the first
to occur of ten (10) days after Borrower shall receive written
45
<PAGE>
notice of any such failure from Agent or thirty (30) days after any Loan Party
shall become aware thereof.
(d) A default shall occur under any other agreement, document or
instrument to which any Loan Party is a party or by which any such Person or its
property is bound, and such default (i) involves the failure to make any payment
(whether of principal, interest or otherwise, and after giving effect to any
applicable grace or cure period) due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) in respect of any Indebtedness of
such Person in an aggregate amount exceeding $250,000.00 or (ii) causes (or
permits any holder of such Indebtedness or a trustee to cause) such
Indebtedness, or a portion thereof in an aggregate amount exceeding $250,000.00,
to become due prior to its stated maturity or prior to its regularly scheduled
dates of payment.
(e) Any representation or warranty herein or in any Loan Document or
in any written statement pursuant thereto or hereto, any report, financial
statement or certificate made or delivered to Agent or any Lender by any Loan
Party shall be untrue or incorrect in any material respect as of the date when
made or deemed made (including those made or deemed made pursuant to Section 2.2
-----------
and Section 4).
---------
(f) Any of the assets of any Loan Party shall be attached, seized,
levied upon or subjected to a writ or distress warrant, or come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors of such Loan Party and shall remain unstayed or undismissed for sixty
(60) consecutive days; or any Person other than a Loan Party shall apply for the
appointment of a receiver, trustee or custodian for any Loan Party's assets and
shall remain unstayed or undismissed for sixty (60) consecutive days; or any
Loan Party shall have concealed, removed or permitted to be concealed or
removed, any part of its property, with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
or the incurring of an obligation which may be fraudulent under any bankruptcy,
fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced against any Loan
Party in a court having competent jurisdiction seeking a decree or order (i)
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy or other
similar law, (ii) appointing a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or similar official) of any Loan Party or of any
substantial part of its properties, or (iii) ordering the winding up or
liquidation of the affairs of any Loan Party and such case or proceeding shall
remain undismissed or unstayed for sixty (60) consecutive days or such court
shall enter a decree or order granting the relief sought in such case or
proceeding.
(h) Any Loan Party shall (i) file a petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or foreign bankruptcy or other similar law,
(ii) consent to the institution of proceedings thereunder or to the filing of
any such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
of any Loan
46
<PAGE>
Party or of any substantial part of any Loan Party's properties, (iii) fail
generally to pay its debts as such debts become due, or (iv) take any corporate
action in furtherance of any such action.
(i) Final judgment or judgments (after the expiration of all times to
appeal therefrom) for the payment of money in excess of $250,000.00 in the
aggregate shall be rendered against any Loan Party, unless the same shall be (i)
fully covered by insurance in accordance with Section 5.5, or (ii) vacated,
-----------
stayed, bonded, paid or discharged within a period of fifteen (15) days from the
date of such judgment.
(j) There shall occur any Material Adverse Effect since the Closing
Date which shall not have been cured (or waived by the Lender) within ten days
of notice thereof from Agent to Borrower.
(k) Any provision of any Loan Document shall for any reason cease to
be valid, binding and enforceable in accordance with its terms; or any Lien
created under any Collateral Document shall cease to be a valid and perfected
Lien having the first priority (except to the extent provided in the
Subordination Agreement between Borrower and Revolving Lender) in any of the
Collateral purported to be covered thereby.
(l) John P. Miller ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of Borrower.
(m) Ron McKinney ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of the division of
the Borrower acquired from B & M Printing, Inc. and not replaced by an
individual acceptable to Agent within a reasonable period of time.
(n) Either Ed Cox or Russ Gordon ceases for any reason whatsoever
(other than as a result of his death) to be actively engaged in the management
of the division of the Borrower acquired from Lithograph Printing of Memphis,
Inc. and not replaced by an individual acceptable to Agent within a reasonable
period of time.
(o) Cary Rosenthal ceases for any reason whatsoever (other than as a
result of his death) to be actively engaged in the management of the division of
the Borrower acquired from Phoenix Communications, Inc. and King Mailing
Services, Inc. and not replaced by an individual acceptable to Agent within a
reasonable period of time.
(p) Holdings ceases for any reason whatsoever to employ individuals
acceptable to Agent in each of the following positions and any such position is
not filled by an individual satisfactory to Agent within sixty (60) days
thereafter: Chief Financial Officer, Senior Vice President-Marketing and Chief
Operating Officer.
(q) There shall occur a Change of Control.
47
<PAGE>
(r) There shall occur any "Event of Default" under and as defined in
the Subordinated Notes.
(s) An event or condition specified in Section 6.10 hereof shall occur
------------
or exist with respect to any Plan or Multiemployer Plan and, as a result of such
event or condition, together with all other such events or conditions, Borrower,
any Subsidiary thereof or any ERISA Affiliate shall incur or in the opinion of
the Agent shall be reasonably likely to incur a liability to a Plan, a
Multiemployer Plan or PBGC (or any combination of the foregoing) in excess of
$100,000.00 in the aggregate.
(t) The occurrence of a default under the provisions of any of the
other Loan Documents and expiration of any cure or grace period applicable
thereto.
(u) The liquidation, termination or dissolution of the Borrower or
Holdings without the prior written consent of the Lender.
(v) The repudiation of any guaranty of the Obligations by any
Guarantor.
(w) Either Joseph M. Jensen, Alan R. Bartel or Victor Giampietro
ceases for any reason whatsoever (other than as a result of his death) to be
actively engaged in the management of the division of the Borrower acquired from
The Argus Press, Inc. and not replaced by an individual acceptable to Agent
within a reasonable period of time.
(x) Either H. Henry Hederman, Jr. or Gerry Barrick ceases for any
reason whatsoever (other than as a result of his death) to be actively engaged
in the management of the division of the Borrower acquired from Hederman
Brothers, Inc. and not replaced by an individual acceptable to Agent within a
reasonable period of time.
(y) Either Web McQuiddy or David L. McQuiddy, III ceases for any
reason whatsoever (other than as a result of his death) to be actively engaged
in the management of the McQuiddy Division and not replaced by an individual
acceptable to Agent within a reasonable period of time.
(z) Harperprints shall not have merged with and into Borrower on terms
and pursuant to documents in form and substance satisfactory to Agent on or
before the earlier of (i) the expiration or termination of the repurchase option
granted to the Harperprints Sellers pursuant to that certain Stock Purchase
Agreement dated as of March 31, 1998, among Holdings and the Harperprints
Sellers, and (ii) July 1, 1999.
8.2 Remedies.
--------
(a) If any Event of Default shall have occurred and be continuing,
Agent may (and at the request of Requisite Lenders shall) without notice except
as expressly provided herein, increase the rate of interest applicable to the
Loans and the other Obligations, effective as of the date of the occurrence of
the Default giving rise to such Event of Default, to the Default
48
<PAGE>
Rate as provided in Section 1.4(d). If any Event of Default shall have
--------------
occurred and be continuing Agent may (and at the request of Requisite Lenders
shall), without notice, take any one or more of the following actions:
(a) terminate the Acquisition Line Commitment whereupon Lenders' obligation to
make further Acquisition Line Advances shall terminate; or (b) declare all or
any portion of the Obligations to be forthwith due and payable whereupon such
Obligations shall become and be due and payable; or (c) exercise any rights and
remedies provided to Agent under the Loan Documents and/or at law or equity,
including all remedies provided under the Code; provided, however, that upon the
-------- -------
occurrence of an Event of Default specified in Section 8.1 (f), (g) or (h), the
---------------------------
rate of interest applicable to all Obligations shall be increased automatically
to the Default Rate as provided in Section 1.4(d), and Acquisition Line
--------------
Commitment shall immediately terminate and the Obligations shall become
immediately due and payable, in each case, without declaration, notice or demand
by any Person.
Without limiting the generality of the foregoing, Borrower expressly
agrees that in any such event Agent without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon Borrower or any other
Person (all and each of which demands, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the Code and other
applicable law), may forthwith enter upon the premises of Borrower where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Borrower notice and opportunity for a
hearing on Lender's claim or action, and without paying rent to Borrower, and
collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an
option or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. Agent shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase for its benefit and the benefit of Lenders the whole or any part of
said Collateral so sold, free of any right or equity of redemption, which equity
of redemption Borrower hereby releases. Such sales may be adjourned or continued
from time to time with or without notice. Agent shall have the right to conduct
such sales on Borrower's premises or elsewhere and shall have the right to use
Borrower's premises without charge for such sales for such time or times as
Agent deems necessary or advisable.
Borrower further agrees, at Agent's request, to assemble the
Collateral and make it available to Agent at places which Agent shall reasonably
select, whether at Borrower's premises or elsewhere. Until Agent is able to
effect a sale, lease, or other disposition of the Collateral, Agent shall have
the right to use or operate the Collateral on behalf of Lenders, or any part
thereof, to the extent that it deems appropriate for the purpose of preserving
the Collateral or its value or for any other purpose deemed appropriate by
Agent. Agent shall have no obligation to Borrower to maintain or preserve the
rights of Borrower as against third parties with respect to the Collateral while
the Collateral is in the possession of Agent. Agent may, if it so elects, seek
the appointment of a receiver or keeper to take possession of the Collateral and
to enforce any of Agent's remedies with respect to such appointment without
prior notice or hearing. Agent shall
49
<PAGE>
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, as provided in paragraph (d) below, Borrower remaining
liable for any deficiency remaining unpaid after such application, and only
after so paying over such net proceeds and after the payment by Agent of any
other amount required by any provision of law, including section 9-504(1)(c) of
the Code (but only after Agent has received what Agent considers reasonable
proof of a subordinate party's security interest), need Agent account for the
surplus, if any, to Borrower. To the maximum extent permitted by applicable law,
Borrower waives all claims, damages, and demands against Agent arising out of
the repossession, retention or sale of the Collateral except such which may
arise out of the gross negligence or willful misconduct of such party. Borrower
agrees that five (5) days' prior notice by Agent of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Borrower shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Agent, for itself and Lenders is
entitled, Borrower also being liable for any attorneys' fees incurred by Agent
to collect such deficiency.
(b) Borrower agrees to pay any and all costs of Agent, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder.
(c) Except as otherwise specifically provided herein, Borrower hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Agreement or
any Collateral.
(d) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Agent upon receipt, in
the following order of priorities:
First, the payment in full of reasonable expenses of Agent in
-----
connection with such sale, disposition or other realization, including all
expenses, liabilities and advances incurred or made by Agent in connection
therewith, including reasonable attorney's fees;
Second, to the ratable payment of accrued but unpaid interest on the
------
Obligations;
Third, to the ratable payment of unpaid principal of the Obligations;
-----
Fourth, to the ratable payment of all other Obligations until all
------
other Obligations shall have been paid in full; and
Finally, to payment to Borrower, or its successors or assigns, or as a
-------
court of competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
8.3 Grant of License to Use Patent and Trademark Collateral. For the
-------------------------------------------------------
purpose of enabling Agent to exercise rights and remedies under Section 8.2
-----------
hereof (including, without limiting the terms of Section 8.2 hereof, in order to
-----------
take possession of, hold, preserve, process,
50
<PAGE>
assemble, prepare for sale, market for sale, sell or otherwise dispose of
Collateral) at such time as Agent shall be lawfully entitled to exercise such
rights and remedies, Borrower hereby grants to Agent, for the benefit of itself
and Lenders, an irrevocable, non-exclusive license (exercisable without payment
of royalty or other compensation to Borrower) to use, transfer, license or
sublicense any Patent, Trademark, Copyrights or trade secret now owned or
hereafter acquired by Borrower, and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof.
8.4 Waivers by Borrower. Except as otherwise provided for in this
-------------------
Agreement and applicable law to the full extent permitted by applicable law,
Borrower waives (i) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all Loan Documents, notes, commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Agent or Lenders on which Borrower may in any way be liable, and
Borrower hereby ratifies and confirms whatever Agent or Lenders may do in this
regard, (ii) all rights to notice and a hearing prior to Agent's taking
possession or control of, or to Agent's replevin, attachment or levy upon, the
Collateral or any bond or security which might be required by any court prior to
allowing Agent to exercise any of its remedies, and (iii) the benefit of any
right of redemption and all valuation, appraisal and exemption laws. Borrower
acknowledges that it has been advised by counsel of its choice with respect to
this Agreement, the other Loan Documents and the transactions contemplated by
this Agreement and the other Loan Documents.
9. SUCCESSORS AND ASSIGNS
9.1 Successors and Assigns. This Agreement and the other Loan Documents
----------------------
shall be binding on and shall inure to the benefit of Borrower, Agent, Lenders
and their respective successors and assigns, except as otherwise provided herein
or therein. Borrower may not assign, delegate, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the Loan Documents without the prior express written consent of Agent and
Lenders. Any such purported assignment, transfer, hypothecation or other
conveyance by Borrower without such prior express written consent shall be void.
The terms and provisions of this Agreement and the other Loan Documents are for
the purpose of defining the relative rights and obligations of Borrower, Agent
and the Lenders with respect to the transactions contemplated hereby and there
shall be no third party beneficiaries of any of the terms and provisions of this
Agreement or any of the other Loan Documents.
10. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
10.1 Assignment and Participations
-----------------------------
(a) The Loan Parties signatory hereto consent to any Lender's assignment
of, and/or sale of participations in, at any time or times, the Loan Documents,
Loans and any Commitment
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<PAGE>
or of any portion thereof or interest therein, including any Lender's rights,
title, interests, remedies, powers or duties thereunder, whether evidenced by a
writing or not. Any assignment by a Lender shall (i) require the consent of
Agent (which shall not be unreasonably withheld or delayed) and the execution of
an assignment agreement (an "Assignment Agreement") substantially in the form
--------------------
attached hereto as Exhibit B and otherwise in form and substance satisfactory
---------
to, and acknowledged by, Agent; (ii) be conditioned on such assignee Lender
representing to the assigning Lender and Agent that (x) it is purchasing the
applicable Loans to be assigned to it for its own account, for investment
purposes and not with a view to the distribution thereof, and (y) that it, or
its parent, has assets in excess of $100,000,000; (iii) if a partial assignment
to a Person other than a Lender, be in an amount at least equal to $5,000,000
and, after giving effect to any such partial assignment, the assigning Lender
shall have retained Commitments in an amount at least equal to $5,000,000; and
(iv) include a payment to Agent of an assignment fee of $3,500. In the case of
an assignment by a Lender under this Section 10.1, the assignee shall have, to
------------
the extent of such assignment, the same rights, benefits and obligations as it
would if it were a Lender hereunder. The assigning Lender shall be relieved of
its obligations hereunder with respect to its Commitments or assigned portion
thereof from and after the date of such assignment. Borrower hereby acknowledges
and agrees that any assignment will give rise to a direct obligation of Borrower
to the assignee and that the assignee shall be considered to be a "Lender". In
all instances, each Lender's liability to make Loans hereunder shall be several
and not joint and shall be limited to such Lender's Pro Rata Share of the
applicable Commitment. In the event Agent or any Lender assigns or otherwise
transfers all or any part of the Obligations, Agent or any such Lender shall so
notify Borrower and Borrower shall, upon the request of Agent or such Lender,
execute new Notes in exchange for the Notes, if any, being assigned.
Notwithstanding the foregoing provisions of this Section 10.1(a), any Lender may
---------------
at any time pledge the Obligations held by it and such Lender's rights under
this Agreement and the other Loan Documents to a Federal Reserve Bank, and any
Lender that is an investment fund may assign the Obligations held by it and such
Lender's rights under this Agreement and the other Loan Documents to another
investment fund managed by the same investment advisor; provided, however, that
-------- -------
no such pledge to a Federal Reserve Bank shall release such Lender from such
Lender's obligations hereunder or under any other Loan Document.
(b) Any participation by a Lender of all or any part of its Commitments
shall be made with the understanding that all amounts payable by Borrower
hereunder shall be determined as if that Lender had not sold such participation,
and that the holder of any such participation shall not be entitled to require
such Lender to take or omit to take any action hereunder except actions directly
affecting (i) any reduction in the principal amount of, or interest rate or Fees
payable with respect to, any Loan in which such holder participates, (ii) any
extension of the scheduled amortization of the principal amount of any Loan in
which such holder participates or the final maturity date thereof, and (iii) any
release of all or substantially all of the Collateral (other than in accordance
with the terms of this Agreement, the Collateral Documents or the other Loan
Documents). Solely for purposes of Sections 1.9, 1.10, 1.11 and 10.7, Borrower
------------ ---- ---- ----
acknowledges and agrees that a participation shall give rise to a direct
obligation of Borrower to the participant and the participant shall be
considered to be a "Lender". Except as set forth in the preceding sentence
neither Borrower nor any Loan Party shall have any obligation or duty to any
52
<PAGE>
participant. Neither Agent nor any Lender (other than the Lender selling a
participation) shall have any duty to any participant and may continue to deal
solely with the Lender selling a participation as if no such sale had occurred.
(c) Except as expressly provided in this Section 10.1, no Lender shall, as
------------
between Borrower and that Lender, or Agent and that Lender, be relieved of any
of its obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans,
the Notes or other Obligations owed to such Lender.
(d) Each Loan Party executing this Agreement shall assist any Lender
permitted to sell assignments or participations under this Section 10.1 as
------------
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested
(provided, however, that no such document, agreement, note or instrument shall
- --------- -------
modify the economic terms of the Loans to the detriment of Borrower or increase
any Loan Party's obligations under any Loan Document) and, if requested by
Agent, the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Loan
Party executing this Agreement shall certify the correctness, completeness and
accuracy of all descriptions of the Loan Parties and their affairs contained in
any selling materials provided by them and all other information provided by
them and included in such materials, except that any Projections delivered by
Borrower shall only be certified by Borrower as having been prepared by Borrower
in compliance with the representations contained in Section 3.4.
-----------
(e) A Lender may furnish any information concerning Loan Parties in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants).
(f) So long as no Event of Default shall have occurred and be continuing,
no Lender shall assign or sell participations in any portion of its Loans or
Commitments to a potential Lender or participant, if, as of the date of the
proposed assignment or sale, the assignee Lender or participant would be subject
to capital adequacy or similar requirements under Section 1.12(a), increased
---------------
costs under Section 1.12(b), an inability to fund LIBOR Loans under Section
--------------- -------
1.12(c), or withholding taxes in accordance with Section 1.11(a).
- ------- ---------------
10.2. Appointment of Agent. GE Capital is hereby appointed
--------------------
to act on behalf of all Lenders as Agent under this Agreement and the other Loan
Documents. The provisions of this Section 10.2 are solely for the benefit of
------------
Agent and Lenders and no Loan Party nor any other Person shall have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any Loan Party or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and administrative
in nature and Agent shall not have, or be deemed to have, by reason of this
53
<PAGE>
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. Neither Agent nor any of its Affiliates nor any of their
respective officers, directors, employees, agents or representatives shall be
liable to any Lender for any action taken or omitted to be taken by it hereunder
or under any other Loan Document, or in connection herewith or therewith, except
for damages caused by its or their own gross negligence or willful
misconduct.
If Agent shall request instructions from Requisite Lenders or all
affected Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any other Loan Document, then Agent shall be
entitled to refrain from such act or taking such action unless and until Agent
shall have received instructions from Requisite Lenders, Requisite Acquisition
Line Lenders or all affected Lenders, as the case may be, and Agent shall not
incur liability to any Person by reason of so refraining. Agent shall be fully
justified in failing or refusing to take any action hereunder or under any other
Loan Document (a) if such action would, in the opinion of Agent, be contrary to
law or the terms of this Agreement or any other Loan Document, (b) if such
action would, in the opinion of Agent, expose Agent to Environmental Liabilities
and Costs or (c) if Agent shall not first be indemnified to its reasonable
satisfaction against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. Without limiting
the foregoing, no Lender shall have any right of action whatsoever against
Agent as a result of Agent acting or refraining from acting hereunder or under
any other Loan Document in accordance with the instructions of Requisite
Lenders, Requisite Acquisition Line Lenders or all affected Lenders, as
applicable.
10.3 Agent's Reliance, Etc. Neither Agent nor any of its Affiliates nor
---------------------
any of their respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with this Agreement or the other Loan Documents, except for damages caused by
its or their own gross negligence or willful misconduct. Without limitation of
the generality of the foregoing, Agent: (a) may treat the payee of any Note as
the holder thereof until Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to Agent; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Loan Party or to
inspect the Collateral (including the books and records) of any Loan Party; (e)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
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<PAGE>
10.4 GE Capital and Affiliates. With respect to its Commitments
-------------------------
hereunder, GE Capital shall have the same rights and powers under this Agreement
and the other Loan Documents as any other Lender and may exercise the same as
though it were not Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include GE Capital in its individual capacity. GE
Capital and its Affiliates may lend money to, invest in, and generally engage in
any kind of business with, any Loan Party, any of their Affiliates and any
Person who may do business with or own securities of any Loan Party or any such
Affiliate, all as if GE Capital were not Agent and without any duty to account
therefor to Lenders. GE Capital and its Affiliates may accept fees and other
consideration from any Loan Party for services in connection with this Agreement
or otherwise without having to account for the same to Lenders. GE Capital has
also purchased certain equity interests in Holdings and received a warrant from
Holdings, which is a corporation which currently owns one hundred percent (100%)
of the outstanding Stock of Borrower. Each Lender acknowledges the potential
conflict of interest between GE Capital as a Lender holding disproportionate
interests in the Loans, GE Capital as a stockholder, and/or warrant holder of
Holdings, and GE Capital as Agent.
10.5 Indemnification. Lenders agree to indemnify Agent (to the extent not
---------------
reimbursed by Loan Parties and without limiting the obligations of Borrower
hereunder), ratably according to their respective Pro Rata Shares, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by Agent in connection therewith;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent's gross negligence or
willful misconduct. Without limiting the foregoing, each Lender agrees to
reimburse Agent promptly upon demand for its ratable share of any reasonable
out-of-pocket expenses (including counsel fees) incurred by Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement and each other Loan Document, to the extent that Agent is not
reimbursed for such expenses by Loan Parties.
10.6 Successor Agent. Agent may resign at any time by giving not less
---------------
than thirty (30) days' prior written notice thereof to Lenders and Borrower.
Upon any such resignation, the Requisite Lenders shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within 30 days after
the resigning Agent's giving notice of resignation, then the resigning Agent
may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender,
if a Lender is willing to accept such appointment, or otherwise shall be a
commercial bank or financial institution or a subsidiary of a commercial bank or
financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, by the 30th day after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the
55
<PAGE>
Requisite Lenders shall thereafter perform all the duties of Agent hereunder
until such time, if any, as the Requisite Lenders appoint a successor Agent as
provided above. Any successor Agent appointed by Requisite Lenders hereunder
shall be subject to the approval of Borrower, such approval not to be
unreasonably withheld or delayed; provided that such approval shall not be
required if a Default or an Event of Default shall have occurred and be
continuing. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall succeed to and become vested with
all the rights, powers, privileges and duties of the resigning Agent. Upon the
earlier of the acceptance of any appointment as Agent hereunder by a successor
Agent or the effective date of the resigning Agent's resignation, the resigning
Agent shall be discharged from its duties and obligations under this Agreement
and the other Loan Documents, except that any indemnity rights or other rights
in favor of such resigning Agent shall continue. After any resigning Agent's
resignation hereunder, the provisions of this Section 10 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement and the other Loan Documents.
10.7 Setoff and Sharing of Payments. In addition to any rights now or
------------------------------
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender and each holder of any Note is hereby authorized at any time or from
time to time, without notice to any Loan Party or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all balances held by it at any of its offices for the account of
Borrower or any Guarantor (regardless of whether such balances are then due to
Borrower or such Guarantor) and any other properties or assets any time held or
owing by that Lender or that holder to or for the credit or for the account of
Borrower or any Guarantor against and on account of any of the Obligations which
are not paid when due. Any Lender or holder of any Note exercising a right to
set off or otherwise receiving any payment on account of the Obligations in
excess of its Pro Rata Share thereof shall purchase for cash (and the other
Lenders or holders shall sell) such participations in each such other Lender's
or holder's Pro Rata Share of the Obligations as would be necessary to cause
such Lender to share the amount so set off or otherwise received with each other
Lender or holder in accordance with their respective Pro Rata Shares. Borrower
and each Loan Party that is a Guarantor agrees, to the fullest extent permitted
by law, that (a) any Lender or holder may exercise its right to set off with
respect to amounts in excess of its Pro Rata Share of the Obligations and may
sell participations in such amount so set off to other Lenders and holders and
(b) any Lender or holders so purchasing a participation in the Loans made or
other Obligations held by other Lenders or holders may exercise all rights of
set-off, bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender or holder were a direct holder of the
Loans and the other Obligations in the amount of such participation.
Notwithstanding the foregoing, if all or any portion of the set-off amount or
payment otherwise received is thereafter recovered from the Lender that has
exercised the right of set-off, the purchase of participations by that Lender
shall be rescinded and the purchase price restored without
interest.
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<PAGE>
10.8 Advances; Payments; Non-Funding Lenders; Information; Actions in
----------------------------------------------------------------
Concert.
- -------
(a) Advances; Payments. (i) Agent shall notify Acquisition Line
------------------
Lenders, promptly after receipt of a notice of Acquisition Line Advance by
telecopy, telephone or other similar form of transmission. Each Acquisition Line
Lender shall make the amount of such Lender's Pro Rata Share of such Acquisition
Line Advance available to Agent in same day funds by wire transfer to Agent's
account as set forth in Annex E not later than 11:00 a.m. (New York time) on the
-------
requested funding date. After receipt of such wire transfers (or, in the Agent's
sole discretion, before receipt of such wire transfers), subject to the terms
hereof, Agent shall make the requested Acquisition Line Advance to the Borrower
in the notice of Acquisition Line Advance. All payments by each Acquisition Line
Lender shall be made without setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each calendar week or more
frequently as aggregate cumulative payments in excess of $2,000,000 are received
with respect to the Loans (each, a "Settlement Date"), Agent will advise each
---------------
Lender by telephone, or telecopy of the amount of such Lender's Pro Rata Share
of principal, interest and Fees paid for the benefit of Lenders with respect to
each applicable Loan. Provided that such Lender has funded all payments or
Advances required to be made by it and has purchased all participations required
to be purchased by it under this Agreement and the other Loan Documents as of
such Settlement Date, Agent will pay to each Lender such Lender's Pro Rata Share
of principal, interest and Fees paid by Borrowers since the previous Settlement
Date for the benefit of that Lender on the Loans held by it. To the extent that
any Lender (a "Non-Funding Lender") has failed to fund all such payments and
------------------
Advances or failed to fund the purchase of all such participations, Agent shall
be entitled to set off the funding short-fall against that Non-Funding Lender's
Pro Rata Share of all payments received from Borrower. Such payments shall be
made by wire transfer to such Lender's account (as specified by such Lender in
Annex E or the applicable Assignment Agreement) not later than 2:00 p.m. (New
- -------
York time) on the next Business Day following each Settlement Date.
(b) Availability of Lender's Pro Rata Share. Agent may assume that
---------------------------------------
each Acquisition Line Lender will make its Pro Rata Share of each Acquisition
Line Advance available to Agent on each funding date. If such Pro Rata Share is
not, in fact, paid to Agent by such Acquisition Line Lender when due, Agent will
be entitled to recover such amount on demand from such Acquisition Line Lender
without set-off, counterclaim or deduction of any kind. If any Acquisition Line
Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's
demand, Agent shall promptly notify Borrower and Borrower shall immediately
repay such amount to Agent. Nothing in this Section 10.8(b) or elsewhere in
---------------
this Agreement or the other Loan Documents shall be deemed to require Agent to
advance funds on behalf of any Lender or to relieve any Lender from its
obligation to fulfill its Commitments hereunder or to prejudice any rights that
Borrower may have against any Lender as a result of any default by such Lender
hereunder. To the extent that Agent advances funds to Borrower on behalf of any
Acquisition Line Lender and is not reimbursed therefor on the same Business Day
as such Advance is made, Agent shall be entitled to retain for its account all
interest accrued on such Advance until reimbursed by the applicable Acquisition
Line Lender.
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<PAGE>
(c) Return of Payments. (i) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrower and such related payment is not received by
Agent, then Agent will be entitled to recover such amount from such Lender on
demand without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received by Agent
under this Agreement must be returned to Borrower or paid to any other Person
pursuant to any insolvency law or otherwise, then, notwithstanding any other
term or condition of this Agreement or any other Loan Document, Agent will not
be required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
(d) Non-Funding Lenders. The failure of any Non-Funding Lender to make any
-------------------
Acquisition Line Advance or any payment required by it hereunder on the date
specified therefor shall not relieve any other Acquisition Line Lender (each
such other Acquisition Line Lender, an "Other Lender") of its obligations to
------------
make such Advance on such date, but neither any Other Lender nor Agent shall be
responsible for the failure of any Non-Funding Lender to make an Advance or to
purchase a participation required hereunder. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
"Lender" or an "Acquisition Line Lender" (or be included in the calculation of
"Requisite Lenders" or, "Requisite Acquisition Line Lenders" hereunder) for any
voting or consent rights under or with respect to any Loan Document.
(e) Dissemination of Information. Agent will use reasonable efforts to
----------------------------
provide Lenders with any notice of Default or Event of Default received by Agent
from, or delivered by Agent to, any Loan Party, with notice of any Event of
Default of which Agent has actually taken by Agent following any Event of
Default; provided, however, that Agent shall not be liable to any Lender for any
failure to do so, except to the extent that such failure is attributable to
Agent's gross negligence or willful misconduct. Lenders acknowledge that
Borrower is required to provide Financial Statements and collateral reports to
Agent in accordance with Annex D and Section 5.8 hereto and agree that Agent
------- -----------
shall have no duty to provide the same to Lenders.
(f) Actions in Concert. Anything in this Agreement to the contrary
------------------
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of set-off) without
first obtaining the prior written consent of Agent and Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent.
11. MISCELLANEOUS
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<PAGE>
11.1 Complete Agreement; Modification of Agreement. The Loan Documents
---------------------------------------------
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2 below. Any letter of interest, commitment letter, and/or
------------
fee letter (other than the Fee Letter) between any Loan Party on one hand and
Agent or any Lender or any of their respective affiliates on the other hand,
predating this Agreement and relating to a financing of substantially similar
form, purpose or effect shall be superseded by this
Agreement.
11.2 Amendments and Waivers. (a) Except for actions expressly permitted
----------------------
to be taken by Agent, no amendment, modification, termination or waiver of any
provision of this Agreement or any of the Notes, or any consent to any departure
by any Loan Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by Agent and Borrower, and by Requisite Lenders,
Requisite Acquisition Line Lenders or all affected Lenders, as applicable.
Except as set forth in clauses (b) and (c) below, all such amendments,
----------- ---
modifications, terminations or waivers requiring the consent of any Lenders
shall require the written consent of Requisite Lenders.
(b) No amendment, modification, termination or waiver of or consent with
respect to any provision of this Agreement which waives compliance with the
conditions precedent set forth in Section 2.2 to the making of any Loan shall be
-----------
effective unless the same shall be in writing and signed by Agent, Requisite
Acquisition Line Lenders and Borrower. Notwithstanding anything contained in
this Agreement to the contrary, no waiver or consent with respect to any Default
(if in connection therewith Agent or Requisite Acquisition Line Lenders, as the
case may be, have exercised its or their right to suspend the making or
incurrence of further Advances pursuant to Section 8.2(a)) or any Event of
---------------
Default shall be effective for purposes of the conditions precedent to the
making of Loans set forth in Section 2.2 unless the same shall be in writing and
-----------
signed by Agent, Requisite Acquisition Line Lenders and Borrowers.
(c) No amendment, modification, termination or waiver shall, unless in
writing and signed by Agent and each Lender directly affected thereby, do any of
the following: (i) increase the principal amount of any Lender's Commitment
(which action shall be deemed to directly affect all Lenders); (ii) reduce the
amount due on any schedule payment date or reduce the principal of, rate of
interest on or Fees payable with respect to any Loan of any affected Lender;
(iii) extend any scheduled payment date or final maturity date of the principal
amount of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or
postpone any payment of interest or Fees as to any affected Lender; (v) release
any Guaranty or, except as otherwise permitted herein or in the other Loan
Documents, release, or permit any Loan Party to sell or otherwise dispose of,
any Collateral with a value exceeding $2,500,000 in the aggregate (which action
shall be deemed to directly affect all Lenders) provided, however, that Agent
-------- -------
shall be authorized to release that certain web press currently located at 2500
Lamar Avenue, Memphis, Tennessee and previously sold to John P. Mller, without
the consent of any Lender; (vi) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Loans which shall be required for
Lenders or any of them to take any action hereunder; and (vii) amend
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<PAGE>
or waive this Section 11.2 or the definitions of the terms "Requisite Lenders"
------------
or "Requisite Acquisition Line Lenders" insofar as such definitions affect the
substance of this Section 11.2. Furthermore, no amendment, modification,
------------
termination or waiver affecting the rights or duties of Agent under this
Agreement or any other Loan Document shall be effective unless in writing and
signed by Agent, in addition to Lenders required hereinabove to take such
action. Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No amendment, modification, termination or waiver shall be required for
Agent to take additional Collateral pursuant to any Loan Document. No amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that Note. No notice
to or demand on any Loan Party in any case shall entitle such Loan Party or any
other Loan Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 11.2 shall be binding upon each holder
------------
of the Notes at the time outstanding and each future holder of the Notes.
(d) If, in connection with any proposed amendment, modification,
waiver or termination (a "Proposed Change"):
---------------
(i) requiring the consent of all affected Lenders, the consent of
Requisite Lenders is obtained, but the consent of other Lenders whose consent is
required is not obtained (any such Lender whose consent is not obtained as
described this clause (i) and in clauses (ii) and (iii) below being referred to
---------- ------------ -----
as a "Non-Consenting Lender"), or
---------------------
(ii) requiring the consent of Requisite Acquisition Line Lenders, the
consent of Acquisition Line Lenders holding 51% or more of the aggregate
Acquisition Line Commitments is obtained, but the consent of Requisite
Acquisition Line Lenders is not obtained, or
(iii) requiring the consent of Requisite Lenders, the consent of
Lenders holding 51% or more of the aggregate Commitments is obtained, but the
consent of Requisite Lenders is not obtained,
then, so long as Agent is not a Non-Consenting Lender, at Borrower's request,
Agent or a Person acceptable to Agent shall have the right with Agent's consent
and in Agent's sole discretion (but shall have no obligation) to purchase from
such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they
shall, upon Agent's request, sell and assign to Agent or such Person, all of the
Commitments of such Non-Consenting Lender for an amount equal to the principal
balance of all Loans held by the Non-Consenting Lender and all accrued interest
and Fees with respect thereto through the date of sale, such purchase and sale
to be consummated pursuant to an executed Assignment Agreement.
(e) Upon indefeasible payment in full in cash and performance of all
of the Obligations (other than indemnification Obligations under Section 1.9),
-----------
termination of the Commitments and a release of all claims against Agent and
Lenders, and so long as no suits, actions, proceedings, or claims are pending or
threatened against any Indemnified Person
60
<PAGE>
asserting any damages, losses or liabilities that are Indemnified Liabilities,
Agent shall deliver to Borrower termination statements, mortgage releases and
other documents necessary or appropriate to evidence the termination of the
Liens securing payment of the Obligations.
11.3 Fees and Expenses.
-----------------
(a) Borrower shall pay on demand all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) of Agent in
connection with the preparation, negotiation, approval, execution, delivery,
administration, modification, amendment, waiver and enforcement (whether through
negotiations, legal proceedings or otherwise) of the Loan Documents, and
commitments relating thereto, and the other documents to be delivered hereunder
or thereunder and the transactions contemplated hereby and thereby and the
fulfillment or attempted fulfillment of conditions precedent hereunder,
excluding costs and expenses incurred in connection with any sale or assignment
of any of the Loans prior to acceleration of the Obligations, other than sales
or assignments made by GE Capital of Loans in an aggregate principal amount not
to exceed $28,000,000; and including, without limitation: (i) wire transfer fees
and other costs of forwarding to Borrower or any other Person on behalf of
Borrower by Agent and the Lenders of the proceeds of the Term Loan or
Acquisition Line Advances; (ii) any amendment, modification or waiver of, or
consent with respect to, any of the Loan Documents or advice in connection with
the administration of the advances made pursuant hereto or its rights hereunder
or thereunder; (iii) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Agent, the Lenders, Borrower or any other Person)
in any way relating to the Collateral, any of the Loan Documents or any other
agreements to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against Borrower or any other Person that
may be obligated to Agent by virtue of the Loan Documents; (iv) any attempt to
enforce any rights of Agent against Borrower or any other Person that may be
obligated to Agent or the Lenders by virtue of any of the Loan Documents; or (v)
after the occurrence and during the continuance of any Default, any effort to
(A) evaluate, observe, assess Borrower or its affairs, or (B) verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of the
Collateral.
(b) Borrower shall pay on demand all reasonable costs and expenses
(including, without limitation, reasonable counsels' fees) of Agent and the
Lenders in connection with any Default and any enforcement or collection
proceedings resulting therefrom or any amendment, modification or waiver of, or
consent with respect to, any of the Loan Documents in connection with any
Default.
(c) Without limiting the generality of clauses (a) and (b) above,
Borrower's obligation to reimburse Agent and/or the Lenders for costs and
expenses shall include the reasonable fees and expenses of counsel (and local,
foreign or special counsel, advisors, consultants and auditors retained by such
counsel), accountants, environmental advisors, appraisers, investment bankers,
management and other consultants and paralegals; court costs and expenses;
photocopying and duplicating expenses; court reporter fees, costs and expenses;
long distance telephone charges; air express charges; telegram charges;
secretarial overtime
61
<PAGE>
charges; expenses for travel, lodging and food; and all other out-of-pocket
costs and expenses of every type and nature paid or incurred in connection with
the performance of such legal or other advisory services.
11.4 No Waiver. No failure on the part of Agent or the Lenders, at
---------
any time or times, to require strict performance by any Loan Party, of any
provision of this Agreement and any of the other Loan Documents shall waive,
affect or diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of a Default
shall not suspend, waive or affect any other Default whether the same is prior
or subsequent thereto and whether of the same or of a different type. None of
the undertakings, agreements, warranties, covenants and representations of any
Loan Party contained in this Agreement or any of the other Loan Documents and no
Default by any Loan Party shall be deemed to have been suspended or waived by
Agent or any Lender, unless such waiver or suspension is by an instrument in
writing signed by an officer of or other authorized employee of Agent and the
applicable required Lender if required hereunder and directed to Borrower
specifying such suspension or waiver.
11.5 Remedies. The rights and remedies of Agent and the Lenders under
--------
this Agreement shall be cumulative and nonexclusive of any other rights and
remedies which Agent or the Lenders may have under any other agreement,
including, without limitation, the Loan Documents, by operation of law or
otherwise. Recourse to the Collateral shall not be required.
11.6 Severability. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
11.7 Conflict of Terms. Except as otherwise provided in this Agreement or
-----------------
any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provisions contained in this Agreement shall govern and control.
11.8 Right of Set-off. Subject to Section 1.3(a), upon the occurrence and
---------------- --------------
during the continuance of any Event of Default, Agent is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply in accordance with Section 1.7 any and all deposits (general or
-----------
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by Agent and/or the Lenders to or for the credit
or the account of Borrower against any and all of the Obligations now or
hereafter existing irrespective of whether or not Agent or such Lender shall
have made any demand under this Agreement or any other Loan Document and
although such Obligations may be unmatured. Agent agrees promptly to notify the
Lenders and Borrower after any such set-off and application made by Agent;
provided, however, that the failure to give such notice shall not affect the
- -------- -------
validity of such set-off and application. The rights of Agent and the Lenders
under this Section are in addition to
62
<PAGE>
the other rights and remedies (including, without limitation, other rights of
set-off) which Agent and the Lenders may have.
11.9 Authorized Signature. Until Agent shall be notified by Borrower to
--------------------
the contrary, to the signature upon any document or instrument delivered
pursuant hereto and believed by Agent or any of Agent 's officers, the Lenders,
or employees to be that of an officer or duly authorized representative of
Borrower listed on Schedule 11.9 shall bind Borrower and be deemed to be the act
-------------
of Borrower affixed pursuant to and in accordance with resolutions duly adopted
by Borrower's Board of Directors, and Agent and the Lenders shall be entitled to
assume the authority of each signature and authority of the person whose
signature it is or appears to be unless the person acting in reliance of such
signature shall have actual knowledge of the fact that such signature is false
or the person whose signature or purported signature is presented is without
authority.
11.10 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
-------------
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE,
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER, AGENT AND
LENDERS HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW
YORK CITY, NEW YORK, OR CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND
BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY
A COURT LOCATED OUTSIDE OF NEW YORK CITY OR CHICAGO, AS THE CASE MAY BE, AND,
PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
----- --- ----------
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH ON
63
<PAGE>
SCHEDULE 11.11 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
- --------------
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
11.11 Notices. Except as otherwise provided herein, whenever it is
-------
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon either of the
parties by the other party, or whenever either of the parties desires to give or
serve upon the other party any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed to have been validly
served, given or delivered (i) upon the earlier of actual receipt and three (3)
days after deposit in the United States Mail, registered or certified mail,
return receipt requested, with proper postage prepaid, (ii) upon transmission,
when sent by telecopy or other similar facsimile transmission (with such
telecopy or facsimile promptly confirmed by delivery of a copy by personal
delivery or United States Mail as otherwise provided in this Section 11.11,
-------------
(iii) one (1) Business Day after deposit with a reputable overnight courier with
all charges prepaid or (iv) when delivered, if hand-delivered by messenger, all
of which shall be addressed to the party to be notified and sent to the address
or facsimile number indicated below or to such other address (or facsimile
number) as may be substituted by notice given as herein provided. The giving of
any notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower, the Lender or the Lender) designated below to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
If to Agent or
GE Capital, at: General Electric Capital Corporation
Capital Funding, Inc.
777 Long Ridge Road
Bldg. B, First Floor
Stamford, Connecticut 06927
Attention: Risk Manager
Telecopy No.: (203) 316-7700
With copies to:
General Electric Capital Corporation
777 Long Ridge Road
Building B, First Floor
Stamford, Connecticut 06927
Attention: Counsel-Capital Funding, inc.
Telecopy No.: (203) 703-1777
64
<PAGE>
General Electric Capital Corporation
Capital Funding, Inc.
5400 LBJ Freeway, Suite 1280
Dallas, Texas 75240
Attention: Mr. John Hanley
Mr. Steve Bellah
Telecopy No.: (972) 419-3289
and
Patton Boggs, L.L.P.
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Larry A. Makel, Esq.
Telecopy No.: (214) 871-2688
If to Borrower, at: Premier Graphics, Inc.
6075 Poplar, Suite 401
Memphis, Tennessee 38119
Attention: Mr. John P. Miller
Telecopy No.: (901) 685-3600
11.12 Section Titles. The Section titles and Table of Contents
--------------
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of this Agreement.
11.13 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
11.14 Time of the Essence. Time is of the essence of this Agreement
-------------------
and each of the other Loan Documents.
11.15 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
--------------------
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
65
<PAGE>
11.16 NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE
------------------
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
11.17 RELEASE. BORROWER ACKNOWLEDGES AND AGREES THAT (A) IT HAS NO
-------
CLAIMS, COUNTERCLAIMS, OFFSETS, CREDITS OR DEFENSES OF ANY KIND OR NATURE
WHATSOEVER TO THE ORIGINAL AGREEMENT, THE RESTATED AGREEMENT AND THE OTHER LOAN
DOCUMENTS (AS SUCH TERM IS DEFINED IN EACH OF THE ORIGINAL AGREEMENT AND THE
RESTATED AGREEMENT) AND THE PERFORMANCE OF ITS OBLIGATIONS THEREUNDER, OR (B) IF
IT HAS ANY SUCH CLAIMS, COUNTERCLAIMS, OFFSETS, CREDITS OR DEFENSES TO THE LOAN
DOCUMENTS (AS SUCH TERM IS DEFINED IN EACH OF THE ORIGINAL AGREEMENT AND THE
RESTATED AGREEMENT) AND/OR ANY TRANSACTION RELATED TO THE LOAN DOCUMENTS (AS
SUCH TERM IS DEFINED IN EACH OF THE ORIGINAL AGREEMENT AND THE RESTATED
AGREEMENT), SAME ARE HEREBY WAIVED, RELINQUISHED AND RELEASED IN CONSIDERATION
OF EACH LENDER'S EXECUTION AND DELIVERY OF THIS AGREEMENT.
11.18 Amendment and Restatement. This Agreement and the Notes are
-------------------------
given in amendment, restatement, renewal and extension (but not in novation,
extinguishment or satisfaction) of the (i) Restated Loan Agreement and the
promissory notes executed in connection therewith, which Restated Loan Agreement
and such promissory notes were given in amendment, restatement, renewal and
extension (but not in novation, extinguishment or satisfaction) of the Original
Agreement and the promissory notes issued in connection therewith, and (ii) the
Phillips Loan Agreement. All liens and security interests securing payment of
the obligations under the Original Agreement, the Restated Loan Agreement, the
Phillips Loan Agreement and such promissory notes are hereby collectively
renewed, extended, rearranged, ratified and brought forward as security for the
payment and performance of the Obligations. With respect to matters relating to
the period prior to the date hereof, all of the provisions of the Original
Agreement, the Restated Loan Agreement, the Phillips Loan Agreement and the
promissory notes, security agreements and other documents, instruments or
agreements executed in connection therewith are hereby ratified and confirmed
and shall remain in force and effect.
11.19 References. Each of the Loan Documents, and any and all other
----------
Loan Documents, documents or instruments now or hereafter executed and delivered
pursuant to the terms hereof are hereby amended so that (i) any reference in
such other Loan Documents to the Original Agreement, the Restated Loan Agreement
or the Phillips Agreements (including as any thereof may have been amended)
shall mean a reference to this Agreement, and (ii) any reference in such other
Loan Documents to Original Lender shall mean a reference to Agent or Agent and
Lenders, as context may require.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
66
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
Borrower:
PREMIER GRAPHICS, INC.
By:
----------------------------
Lance T. Fair
Secretary
Agent, for the benefit of the Lenders:
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
----------------------------
John E. Hanley
Senior Credit Analyst
Lenders:
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
----------------------------
John E. Hanley
Senior Credit Analyst
67
<PAGE>
INDEX OF ANNEXES, SCHEDULES AND EXHIBITS
Annex A Definitions
Annex B Schedule of Closing Documents
Annex C Financial Statements, Projections and Notices
Annex D Insurance Requirements
Annex E Agent's and Lender's Acquisition Line Advance
Account Information
Annex F Acquisition Line and Term Loan Commitments
Schedule 3.2 - Executive Offices; Trade Names
Schedule 3.4 - Financial Statements and Projections
Schedule 3.5 - Dividends
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Material Contracts
Schedule 3.8 - Labor Matters
Schedule 3.9 - Ventures, Subsidiaries and Affiliates;
Outstanding Stock
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.15 - Brokers
Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.18 - Hazardous Materials
Schedule 3.19 - Insurance Policies
Schedule 3.20 - Disbursement and Deposit Accounts
Schedule 3.22(c) - Schedule of Offices, Locations of Collateral and
Record Concerning Collateral
Schedule 3.22(d) - Schedule of Instruments
Schedule 6.2 - Investments
Schedule 6.3 - Indebtedness
Schedule 6.4 - Loans to and Transactions with Employees
Schedule 6.7 - Liens
Schedule 11.9 - Authorized Signatures
Exhibit A-1 - Form of Note A
Exhibit A-2 - Form of Note B
Exhibit A-3 - Form of Note C
Exhibit A-4 - Form of Acquisition Line Note
Exhibit B - Form of Assignment Agreement
Exhibit C - Form of Borrower Pledge Agreement
Exhibit D - Form of Parent Guaranty
Exhibit E - Form of Parent Pledge Agreement
Exhibit F - Form of Affiliate Guaranty
Exhibit G - Form of Affiliate Security Agreement
<PAGE>
EXHIBIT 10.3
----
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of July 1, 1998, by and between MASTER
GRAPHICS, INC., a Tennessee corporation (the "Company"), and DONALD GOLDMAN (the
"Executive").
WHEREAS, the Company is engaged in the business of providing general
commercial printing services to its customers and acquiring companies in the
general commercial printing industry; and
WHEREAS, the Company desires to employ the Executive to devote full time to
the business of the Company as a senior management employee; and
WHEREAS, the Executive desires to be employed on the terms and subject to
the conditions hereinafter stated.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Employment Agreement, the parties hereby agree as follows:
ARTICLE 1
POSITION AND RESPONSIBILITIES
-----------------------------
During the Term of this Employment Agreement, the Executive agrees to serve
as Chief Information Officer of the Company, and shall perform such duties for
such compensation and subject to such terms and conditions as are hereinafter
set forth.
ARTICLE 2
TERM AND DUTIES
---------------
2.1 Term; Extension. The term of this Employment Agreement (the "Term of
---------------
this Employment Agreement") will commence as of July 1, 1998, and shall continue
through June 30, 2001. On the third and each successive anniversary of the
effective date of this Employment Agreement, the Term of this Employment
Agreement shall be extended for an additional one (1) year period, unless either
party gives notice of such party's intent not to extend the Term of this
Employment Agreement not later than the anniversary date immediately preceding
the anniversary date on which such extension will occur. Termination of the
Executive's employment pursuant to this Employment Agreement shall be governed
by Articles 4 and 5.
2.2 Duties. The Executive shall devote substantially all of his time and
------
attention and best efforts during normal business hours to the Company's
affairs. The Executive shall have such duties and responsibilities as are
assigned to him from time to time by the Board of Directors. As of the
effective date of this Employment Agreement, the Executive shall continue to
<PAGE>
possess and assume senior management authority and responsibility as Chief
Information Officer of the Company, responsible for the management information
systems of the Company, consistent with directions from the Board of Directors
of the Company.
2.3 Location. The duties of the Executive shall be performed at such
--------
locations and places as may be directed by the Board of Directors.
ARTICLE 3
COMPENSATION AND BENEFITS
-------------------------
3.1 Base Compensation. The Company shall pay the Executive a base salary
-----------------
("Base Salary") of $100,000 per annum, subject to applicable withholdings. Base
Salary shall be payable according to the customary payroll practices of the
Company but in no event less frequently than once each month. The Base Salary
shall be reviewed annually and shall be subject to increase or decrease
according to the policies and practices adopted by the Board of Directors from
time to time; provided, however, that in no event shall the Base Salary for any
year be decreased by more than five percent (5%) from the immediately preceding
year's Base Salary as a result of any such annual review.
3.2 Annual Incentive Awards. The Company will pay the Executive annual
-----------------------
incentive compensation (each an "Annual Incentive Award") of up to one hundred
percent (100%) of his Base Salary, in accordance with policies and based on
performance targets established annually by the Compensation Committee of the
Board of Directors. At all times, a majority of the Compensation Committee
shall consist of "Non-Employee Directors" of the Company, as such term is
defined in Section 16b-3, promulgated under the Securities Exchange Act of 1934,
as amended.
3.3 Additional Benefits. The Executive will be entitled to participate in
-------------------
all employee benefit plans or programs and receive all benefits and perquisites
to which salaried employees are eligible under any existing or future plan or
program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, car allowance, savings, thrift and profit sharing plans, termination
pay programs, sick leave plans, travel or accident insurance, disability
insurance, and contingent compensation plans, including capital accumulation
programs, restricted stock programs, stock purchase programs and stock options
plans. Nothing in this Agreement will preclude the Company from amending or
terminating any of the plans or programs applicable to salaried employees or
senior Executives. The Executive will be entitled to an annual paid vacation as
established by the Board of Directors.
3.4 Life Insurance. For so long as the Executive is employed by the
--------------
Company, the Company, at no cost to the Executive (other than taxes owed as a
result of the provision of such insurance), will pay annually up to the lesser
-2-
<PAGE>
of (i) Five Thousand Dollars ($5,000.00) in life insurance premiums or (ii) the
amount of premium required to obtain a life insurance policy on the life of the
Executive with a death benefit equal to twice the Executive's Base Salary for
the year prior to the year in which such policy is procured. The
beneficiary(ies) under the Policy shall be designated by the Executive.
3.5 Business Expenses. The Company will reimburse the Executive for all
-----------------
reasonable travel and other expenses incurred by the Executive in connection
with the performance of his duties and obligations under this Employment
Agreement to the extent the same shall be properly documented in accordance with
the Company's policies and rules of the Internal Revenue Service.
3.6 Withholding. The Company may directly or indirectly withhold from any
-----------
payments under this Employment Agreement all federal, state, city or other taxes
that shall be required pursuant to any law or governmental regulation.
ARTICLE 4
DEATH BENEFIT; DISABILITY COMPENSATION; KEY MAN INSURANCE
---------------------------------------------------------
4.1 Payment in Event of Death. In the event of the death of the Executive
-------------------------
during the Term of this Employment Agreement, this Agreement will terminate and
the Company's obligation to make payments under this Employment Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
incentive compensation which will be paid on a pro-rated basis for the year of
death. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
or referred to in this Employment Agreement, other than "key man" life insurance
benefits.
4.2 Disability Compensation. Notwithstanding the disability of the
-----------------------
Executive, the Company will continue to pay the Executive pursuant to Section 3
hereof during the Term of this Employment Agreement, unless the Executive's
employment is earlier terminated in accordance with this Employment Agreement.
In the event the disability continues for a period of three (3) months, the
Company may thereafter terminate this Employment Agreement and the Executive's
employment. Following such termination, the Company will pay the Executive
amounts equal to his regular installments of Base Salary, as of the time of
termination, for a period of six (6) months. All other compensation will cease
except for earned but unpaid incentive compensation awards which would be
payable on a pro-rated basis for the year in which the disability occurred,
through the date of termination.
4.3 Responsibilities in the Event of Disability. During the period the
-------------------------------------------
Executive is receiving payments following his disability and as long as he is
physically and mentally able to do so, the Executive will furnish information
and assistance to the Company and from time to time will make himself available
to the Company to undertake assignments consistent with his position or prior
position with the Company and his physical and mental health. If the Company
fails to make a payment or provide a benefit required as part of this Employment
Agreement, the Executive's obligation to provide information and assistance will
end.
-3-
<PAGE>
4.4 Definition of Disability. For purposes of this Employment Agreement,
------------------------
the term "disability" will have the same meaning as is ascribed to such term, or
any substantially similar term, in the Company's long term income disability
plan as in effect from time to time or if no such plan exists, the meaning
ascribed to such term in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
4.5 Key-Man Life Insurance. Upon request by the Company, the Executive
----------------------
agrees to cooperate with the Company in obtaining "key man" life insurance on
the life of the Executive, with death benefits payable to the Company. Such
cooperation shall include the submission by the Executive to a medical
examination and his response to inquiries regarding his medical history.
ARTICLE 5
TERMINATION OF EMPLOYMENT
-------------------------
Notwithstanding anything herein to the contrary, this Employment Agreement
and the Executive's employment with the Company may be terminated by the Company
at any time, subject to the terms and provisions of this Section 5.
5.1 Termination Without Cause.
-------------------------
(a) Without a Change in Control. If the Executive suffers a
Termination Without Cause (hereinafter defined) or Constructive Termination
(hereinafter defined) and a Change in Control (hereinafter defined) shall not
have occurred within one (1) year prior thereto, the Company will pay to the
Executive upon such termination a lump sum in an amount equal to 200% of the sum
of the Executive's combined (i) Base Salary as in effect at the time of the
termination and (ii) the average of the Annual Incentive Award for the two (2)
immediately preceding completed calendar years. For six (6) months following
such Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
(b) Upon a Change in Control. If the Executive suffers a Termination
Without Cause or Constructive Termination at the time of or within one (1) year
following a Change in Control, the Company will pay to the Executive in a lump
sum upon such termination an amount equal to the sum of (i) 299% of the
Executive's combined (A) Base Salary as in effect at the time of the termination
and (B) the average of the Annual Incentive Award for the two (2) immediately
preceding completed calendar years, and (ii), to the extent that such foregoing
amount, when added to any other payment in the nature of compensation (within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder ("Section 280G") to or for the
benefit of the Executive (or any part of such amount or other payment)
constitutes an "excess parachute payment" within the meaning of Section 280G,
the amount, if any, of (A) such "excess parachute payment" multiplied by a
-4-
<PAGE>
fraction, the numerator of which is the number one (1.00) and the denominator of
which is (I) the number one (1.00) minus (II) the effective tax rate under
Section 280G applicable to the Executive expressed as a decimal, minus (B) the
amount of such "excess parachute payment." For six (6) months following such
Termination Without Cause or Constructive Termination, the Company shall
reimburse the Executive for the cost of the Executive's major medical health
insurance as in effect at the date of termination. The exercisability of stock
options granted to the Executive shall be governed by any applicable stock
option agreements and the terms of the respective stock option plans.
5.2 Termination With Cause; Voluntary Termination. If the Executive
---------------------------------------------
suffers a Termination with Cause or the Executive terminates his employment with
the Company (a "Voluntary Termination"), then, whether or not there has been a
Change in Control, the Company will not be obligated to pay the Executive any
amounts of compensation or benefits following the date of termination. However,
earned but unpaid Base Salary through the date of termination will be paid in a
lump sum at such time, and incentive compensation, if any, for the year during
which such termination occurs will be pro rated for the portion of the year
prior to the date of termination and paid in accordance with the Company's
customary practice for payment of incentive compensation.
5.3 Definitions. For purposes of this Employment Agreement, the following
-----------
terms have the following meanings:
(a) A "Change in Control" shall occur if an event or series of events
occurs after the effective date of this Employment Agreement which would
constitute either a change in ownership of the Company, within the meaning of
Section 280G, or a change in the ownership of a substantial portion of the
Company's assets, within the meaning of Section 280G, but for purposes of this
definition, the fair market value threshold for determining "substantial portion
of the Company's assets" shall be "greater than 50%;" provided that a sale of
shares of Company stock in a public offering shall not constitute a change in
control for purposes of this Employment Agreement.
(b) "Constructive Termination" means termination of the Executive's
employment by the Executive (i) from a declined reassignment of a job that is
not the equivalent of his then current position as set forth herein (in
responsibility, compensation or geographic area of service, or (ii) on account
of conduct by the Company or the Board that constitutes continuous and material
interference by the Company or the Board with the Executive's performance of his
duties as set forth in Section 2 hereof or the intentional or material breach by
the Company of this Agreement. The Executive shall have a period of one (1)
year after termination of his employment to assert against the Company that he
has suffered a Constructive Termination, and after the expiration of such one
year period, the Executive shall be deemed to have irrevocably waived the right
to such assertion.
-5-
<PAGE>
(c) "Termination With Cause" means termination of the Executive's
employment by the Company, acting in good faith, by written notice to the
Executive specifying the event relied upon for such termination, due to the
Executive's conviction for a felony, the Executive's perpetration of a fraud,
embezzlement or other act of dishonesty or the Executive's intentional breach of
a trust or fiduciary duty which materially adversely affects the Company or its
shareholders.
(d) "Termination Without Cause" means termination of the Executive's
employment by the Company other than due to the Executive's death or disability
or Termination With Cause.
ARTICLE 6
OTHER DUTIES OF THE EXECUTIVE DURING
------------------------------------
AND AFTER THE TERM OF THIS EMPLOYMENT AGREEMENT
-----------------------------------------------
6.1 Additional Information. The Executive will, upon reasonable notice,
----------------------
during or after the Term of this Employment Agreement, furnish information as
may be in his possession and cooperate with the Company as may reasonably be
requested in connection with any claims or legal actions in which the Company is
or may become a party. The Executive shall receive reasonable compensation for
the time expended by him pursuant to this Section 6.1.
6.2 Confidentiality. The Executive recognizes and acknowledges that all
---------------
information pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is a
unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Employment Agreement. The Executive will not during the Term of this
Employment Agreement or thereafter, except to the extent reasonably necessary in
the performance of his duties under this Agreement, give to any person, firm,
association, corporation or governmental agency any information concerning the
affairs, business, clients, customers or other relationships of the Company
except as required by law. The Executive will not make use of this type of
information for his own purposes or for the benefit of any person or
organization other than the Company. The Executive will also use his best
efforts to prevent the disclosure of this information by others. All records,
memoranda, etc. relating to the business of the Company whether made by the
Executive or otherwise coming into his possession are confidential and will
remain the property of the Company.
-6-
<PAGE>
6.3 Noncompetition.
--------------
(a) During the Term of Employment. The Executive will not Compete
with the Company (as defined in subsection (d) hereafter) at any time while he
is employed by the Company or receiving payments from the Company.
(b) Voluntary Termination; Termination With Cause. In the event of a
Voluntary Termination or a Termination With Cause, and upon payment of all
amounts due to Executive under Section 5.2, the Executive will not Compete with
the Company for a period consisting of the longer of (i) the remaining Term of
this Employment Agreement or (ii) one (1) year; provided that if a Voluntary
Termination follows a notice by the Company under Section 2.1 that the Term of
this Employment Agreement will not be automatically extended, there will be no
restriction on the Executive's right to Compete with the Company after the date
his employment terminates.
(c) Termination Without Cause; Constructive Termination. In the event
of a Termination Without Cause or Constructive Termination, upon payment of all
amounts due under Section 5.1, the Executive will not Compete with the Company
for the then remaining Term of this Employment Agreement.
(d) Definition of "Compete" with the Company. For the purposes of
this Section 6, the term "Compete with the Company" means action by the
Executive, direct or indirect, for his own account or for the account of others,
either as an officer, director, stockholder, owner, partner, member, promoter,
employee, consultant, advisor, agent, manager, creditor or in any other
capacity, resulting in the Executive having any pecuniary interest, legal or
equitable ownership, or other financial or non-financial interest in, or
employment, association or affiliation with, any corporation, business trust,
partnership, limited liability company, proprietorship or other business or
professional enterprise that provides printing services within a fifty (50) mile
radius of any location where the Company or any subsidiary or affiliate of the
Company performs such services at the date of a termination of the Executive's
employment or has performed such services within one year prior to such
termination of employment; provided, however, that the term "Compete with the
Company" shall not include ownership (without any more extensive relationship)
of a less than a 5% interest in any publicly-held corporation or other business
entity.
(e) Reasonableness of Scope and Duration; Remedies. The Executive
acknowledges that the covenants contained herein are reasonable as to geographic
and temporal scope. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section 6 would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section 6 without being required to prove damages or furnish any bond or other
security.
-7-
<PAGE>
ARTICLE 7
CONSOLIDATION, MERGER OR SALE OF ASSETS
---------------------------------------
Nothing in this Employment Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially all
of its assets to, another corporation or organization which assumes this
Employment Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or sale of assets, the term "the
Company" as used herein will mean or include the other corporation or
organization and this Employment Agreement shall continue in full force and
effect. This Section 7 is not intended to modify or limit the rights of the
Executive hereunder.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 Entire Agreement. This Employment Agreement contains the entire
----------------
understanding between the Company and the Executive with respect to the subject
matter and supersedes any prior employment or severance agreements between the
Company and its affiliates, and the Executive.
8.2 Amendment; Waiver. This Employment Agreement may not be modified or
-----------------
amended except in writing signed by the parties. No term or condition of this
Employment Agreement will be deemed to have been waived except in writing by the
party charged with waiver. A waiver shall operate only as to the specific term
or condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
8.3 Severability; Modification of Covenant. Should any part of this
--------------------------------------
Employment Agreement be declared invalid for any reason, such invalidity shall
not affect the validity of any remaining portion hereof and such remaining
portion shall continue in full force and effect as if this Employment Agreement
had been originally executed without including the invalid part. Should any
covenant of this Employment Agreement be unenforceable because of its geographic
scope or term, its geographic scope or term shall be modified to such extent as
may be necessary to render such covenant enforceable.
8.4 Effect of Captions. Titles and captions in no way define, limit,
------------------
extend or describe the scope of this Employment Agreement nor the intent of any
provision thereof.
8.5 Counterpart Execution. This Employment Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6 Governing Law; Arbitration. This Employment Agreement has been
--------------------------
executed and delivered in the State of Tennessee and its validity,
interpretation, performance and enforcement shall be governed by the laws of
that state. Any dispute among the parties hereto shall be settled by
arbitration in Memphis, Tennessee, in accordance with the rules then obtaining
of the American Arbitration Association and judgment upon the award rendered may
be entered in any court having jurisdiction thereof. All provisions hereof are
for the protection and are intended to be for the benefit of the parties hereto
-8-
<PAGE>
and enforceable directly by and binding upon each party. Each party hereto
agrees that the remedy at law of the other for any actual or threatened breach
of this Employment Agreement would be inadequate and that the other party shall
be entitled to specific performance hereof or injunctive relief or both, by
temporary or permanent injunction or such other appropriate judicial remedy,
writ or orders as may be decided by a court of competent jurisdiction in
addition to any damages which the complaining party may be legally entitled to
recover together with reasonable expenses of litigation, including attorney's
fees incurred in connection therewith, as may be approved by such court.
8.7 Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
(i) If to the Company, at 6075 Poplar Avenue, Suite 401, Memphis,
Tennessee 38119 or at such other address as may have been furnished to the
Executive by the Company in writing; or
(ii) If to the Executive, at 60075 Poplar Avenue, Suite 401,
Memphis, Tennessee 38119 or such other address as may have been furnished
to the Company by the Executive in writing.
8.8 Binding Agreements. This Employment Agreement shall be binding on the
------------------
parties' successors, heirs and assigns.
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the date first above written.
MASTER GRAPHICS, INC.
By:
-----------------------------
Title:
--------------------------
EXECUTIVE:
--------------------------------
Donald Goldman
-10-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
MASTER GRAPHICS, INC.
COMPUTATION OF NET EARNINGS (LOSS) PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- -----------------------------------------
1997 1998 1997 1998
----------------- ------------------ ------------------ ---------------------
<S> <C> <C> <C> <C>
Net earnings (loss)
before extraordinary loss $ (228) $ 1,886 $ (1,132) $ 3,062
Less preferred stock
dividends 0 (28) 0 (56)
Less accretion of
preferred stock discount 0 (29) 0 (58)
------------------------------------- -----------------------------------------
Net earnings (loss) before
extraordinary loss
applicable to common
shares (228) 1,829 (1,132) 2,948
Extraordinary loss 0 0 0 (2,098)
------------------------------------- -----------------------------------------
Net earnings (loss) applicable to common
shares $ (228) $ 1,829 $ (1,132) $ 850
===================================== =========================================
Basic:
Weighted average
common shares outstanding 4,000,000 7,736,229 4,000,000 5,540,413
===================================== =========================================
Basic earnings (loss)
per share before extraordinary
loss $ (0.06) $ 0.24 $ (0.28) $ 0.53
===================================== =========================================
Basic loss per share -
extraordinary loss 0.00 0.00 0.00 (0.38)
===================================== =========================================
Basic earnings (loss) per share $ (0.06) $ 0.24 $ (0.28) $ 0.15
===================================== =========================================
Diluted:
Weighted average common
shares outstanding 4,000,000 7,736,229 4,000,000 5,540,413
Assumed exercise of
warrants 278,258 220,000 93,772 278,749
Assumed exercise of the
stock option clause in the
deferred compensation
agreements 0 100,000 0 100,000
------------------------------------- -----------------------------------------
4,278,258 8,056,229 4,093,772 5,919,162
===================================== =========================================
Diluted earnings (loss)
per share before extraordinary
loss $ (0.05) $ 0.23 $ (0.28) $ 0.50
===================================== =========================================
Diluted loss per share -
extraordinary loss 0.00 0.00 0.00 (0.35)
===================================== =========================================
Diluted earnings (loss) per share $ (0.05) $ 0.23 $ (0.28) $ 0.15
===================================== =========================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 38,309 38,309
<ALLOWANCES> (1,121) (1,121)
<INVENTORY> 9,375 9,375
<CURRENT-ASSETS> 49,223 49,223
<PP&E> 80,234 80,234
<DEPRECIATION> (8,740) (8,740)
<TOTAL-ASSETS> 176,625 176,625
<CURRENT-LIABILITIES> 22,189 22,189
<BONDS> 0 0
1,408 1,408
0 0
<COMMON> 8 8
<OTHER-SE> 35,623 35,623
<TOTAL-LIABILITY-AND-EQUITY> 176,625 176,625
<SALES> 43,390 109,935
<TOTAL-REVENUES> 43,390 109,935
<CGS> 32,240 81,183
<TOTAL-COSTS> 39,505 100,282
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (19) 93
<INTEREST-EXPENSE> 2,132 7,126
<INCOME-PRETAX> 1,886 3,059
<INCOME-TAX> 0 (4)
<INCOME-CONTINUING> 1,886 3,063
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (2,098)
<CHANGES> 0 0
<NET-INCOME> 1,886 965
<EPS-PRIMARY> 0.24 0.15
<EPS-DILUTED> 0.23 0.15
</TABLE>
